The Reserve Bank is stepping up its call to revise SA’s inflation target for the first time in nearly 25 years — a shift that could reshape monetary policy and help lower long-term interest rates.
Deputy governor Fundi Tshazibana told journalists at a pre-budget briefing last week that the current 3%-6% range was “too wide and out of line with that of our trading partners”, and confirmed technical teams had completed their analysis and were preparing formal recommendations.
The inflation target is set through a process of consultation between the minister of finance and the governor of the Bank. The Bank’s renewed call follows comments by deputy finance minister David Masondo at an investor conference earlier in May, where he indicated that a decision could be announced soon.
The potential shift would mark the first adjustment to the framework since inflation targeting was introduced in 2000. At the time, a wider band was considered appropriate for an emerging economy facing volatile price pressures.
In recent years, however, economists have noted the Bank has placed greater emphasis on the midpoint of 4.5% while also arguing the domestic and global contexts had shifted.
“Most countries now target a single rate — typically 2% or 3% — or at least operate within a much tighter band,” said Maarten Ackerman, chief economist at Citadel.
“With our current 3%-6% target, the upper limit sends a problematic signal; it allows inflation expectations to drift towards 6%, which, in turn, sustains structurally higher interest rates.”
Ackerman argued by reducing the band — potentially to 3%-4% — the Bank could lower inflation expectations and ultimately reduce the cost of borrowing. “If unions and businesses know the Bank is aiming for 3%, wage negotiations won’t start at 6%. That lowers inflation pressures and allows for lower interest rates long term.”
Asked if she expected a single target or range, Investec economist Lara Hodes said “expectations are for a narrower target”. “We could see a gradual decrease to perhaps 3%-5% initially, eventually moving towards a lower range and midpoint in line with some of our key trading partners.”
She said Chile’s model could be considered along with a number of other trading partners. The officially announced target range for Chiles inflation is 2%-4% annually, with a 3% midpoint.
Old Mutual chief economist Johann Els said SA’s target is “out of line with not only our trading partners, but a whole host of developed economies and emerging economies”.
“The US, euro area and UK have a 2% inflation target. China’s is at 3%. Japan is at 2%.”
However, the Reserve Bank would be likely to look at other emerging market peers with ranges “around 3%”, he said, addinghe believed the adjustment would mean a new point target with a band or “tolerance range” around it, rather than a wide range like the current 3%-6%.
He warned that the implementation should be gradual as any new targets needed political buy-in. “All regulators, all setters of official inflation numbers — their so-called administered prices — need to be set at the target.”
The Bank’s next interest rate announcement is scheduled for Thursday but Hodes said any changes to the inflation framework were unlikely to influence that monetary policy decision.
While economists that Business Day spoke to were leaning towards a 25 basis point cut in the repo rate to 7.25%, in line with market consensus, uncertainty remained.
Domestically, April inflation sits at 2.8%, below the 3%-6% target range, and a firmer rand has strengthened the case for a cut.
However, most analysts remain cautious amid global uncertainty and tariff-related volatility. The Bank, after all, held rates steady in March despite a favourable inflation environment, citing concerns about geopolitical instability, US trade uncertainty and rand vulnerability.
The Reserve Bank is in a media blackout period and does not comment on monetary policy matters during this time.
Correction: May 26 2025
An earlier version of this article incorrectly attributed the authority of adjusting the inflation target solely to the Reserve Bank, when this decision falls under the jurisdiction of the Treasury with recommendations from the central bank. We regret the error.
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