The DA, the second-largest party in the government of national unity (GNU), has voiced support for the Reserve Bank’s proposal to lower the country’s inflation target range, a move that could reshape the monetary policy landscape.
“Tentatively, the DA would support a lower inflation target as this was supposed to have been implemented in the mid-2000s and is a long outstanding monetary policy reform,” the party’s head of policy Mat Cuthbert said.
While stopping short of a formal position, Cuthbert said price stability was “critically important in the context of high inequality” arguing that tighter inflation control would better protect the value of money for the poor and vulnerable.
The party, whose deputy federal chair, Ashor Sarupen, is the deputy finance minister, has however yet to adopt a formal position. This position would have to be adopted by its federal executive council, Cuthbert said.
The Reserve Bank is in discussions with the Treasury to bring the target more in line with international peers. Bank governor Lesetja Kganyago has previously pushed hard for SA’s inflation target to be lowered, preferably to the 3% bottom of the 3%-6% target range, to make SA more competitive with its peers and ease pressure on the exchange rate.
The Treasury said in a debut macroeconomic review report released in February’s national budget that it was reviewing the target. Technical work had begun on an appropriate level for an inflation target for SA’s economic context, and whether this should take the form of a point or a range.
Business Day previously reported that the Bank modelling showed that a lower inflation target of 3% could yield nearly R900bn in debt-servicing savings costs over the next decade.
In an interview with Bloomberg this week, Kganyago said the Bank along with the National Treasury’s technical work would be completed “very soon” with recommendations by the technical team to hand over to finance minister Enoch Godongwana.
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