JOHANNESBURG (Reuters) – South Africa’s central bank governor, Lesetja Kganyago, said on Thursday that the country could move to a lower inflation target at little cost.

Kganyago is a strong advocate for a lower target than the bank’s current 3% to 6% range and told Reuters in April that teams from the central bank and National Treasury were in talks about the issue.

Speaking in a lecture at the University of Stellenbosch, Kganyago said reducing the target could help achieve lower inflation and interest rates, drawing on the experience of the bank stressing that it prefers to see inflation close to 4.5%, the midpoint of its target band, since 2017.

“Executed effectively, a lower target could be achieved at little cost, just as we moved to 4.5% at little cost,” Kganyago said.

The governor cited studies that showed there had been little to no negative impact on economic growth from the bank’s decision to stress its preference for 4.5% inflation, rather than treating 3% to 6% as a “zone of indifference”.

He said the emphasis on the 4.5% midpoint had helped lower inflation through “clear and credible communication”.

In April, Kganyago told Reuters that he personally hoped a decision could be taken to lower the inflation target before 2025.

Other arguments given by Kganyago for lowering the bank’s current target include that it is out of kilter with South Africa’s emerging market peers, too wide and serves to anchor inflation expectations higher than policymakers would like.

South Africa introduced its inflation-targeting framework in 2000, and had planned to lower the target to 3%–5% and then 2%-4%.

Share.
Exit mobile version