Financial markets would be concerned that the finance ministry and the central bank seem to be out of step with each other on SA’s inflation target, says the chief of one of the big four banks, after finance minister Enoch Godongwana’s pushback against the Reserve Bank’s “unilateral” move to target inflation at 3%.
The Bank’s announcement on Thursday that it had decided to aim for the bottom of the 3%-6% target range surprised many in the market who had expected that Godongwana would announce this in the medium-term budget later this year.
But Godongwana issued a statement on Friday saying he had no plans to do so — and that any changes to the official target would follow consultation between the National Treasury, the Bank and the cabinet.
With SA’s inflation rate hovering around 3% for the past nine months and a benign outlook, the Bank was keen to lock in permanently lower inflation and interest rates by shifting its effective target from 4.5% to 3%. But while the market had welcomed the move, it has been disconcerted by Godongwana’s unexpectedly aggressive response.
Nedbank CEO Jason Quinn said he could not fault the logic and analysis that went into the Reserve Bank’s revision of the inflation target, which had been well signposted for a long time. But the contestation between the Bank and Godongwana on this had been a surprise.
“I think that there’s space for this policy, but I’m disappointed that it’s being executed unevenly in parts of government that we’ve always had high regard for, and I think financial markets will be concerned about the dissonance between two very important pillars of our markets,” Quinn said.
He was speaking after Nedbank reported a 6% increase in headline earnings to R8.4bn for the six months to June, with return on equity edging up to 15.2%.
S&P’s research arm, S&P Global Market Intelligence, also chimed in with concerns about the divide between the Bank and the Treasury on Tuesday, saying the new unofficial 3% anchor could be difficult to achieve given that Treasury’s recent medium-term spending guidelines project inflation at 4.5%.
“These recent developments highlight a misalignment between SA’s fiscal and monetary policy objectives,” S&P said.
“The situation risks undermining the credibility of fiscal policy efficiency and the goal of achieving debt sustainability, while also potentially un-anchoring market expectations of inflation, thereby complicating the effectiveness of monetary policy,” it said.
Nedbank also clearly does not buy the Bank’s forecasts, which last week suggested that lowering the inflation target to 3% could see five more interest rate cuts.
Quinn said Nedbank sees interest rates flattening out from here on, based on its view of global interest rates.
He said he could not see the US Federal Reserve cutting rates, and on that basis, it would be difficult to see SA cut much further.
While low inflation is important, Quinn said he was far more worried about the effects of low economic growth than the opportunity of low inflation. “If we were as obsessed about growth, I’d feel a lot happier.”
Nedbank recently revised down its growth forecast to 1%, with some downside risk. But Quinn said the bank was seeing green shoots in its lending portfolios, and the pipeline in its corporate and investment banking business was looking good.
There were concerns about clients that were affected by the US administration’s 30% tariff on SA, particularly citrus growers in the Western Cape and the vehicle sector, Mercedes in East London in particular.
“But I can assure you our clients are not sitting on their hands waiting for this to happen. They’re doing something about it. We are doing something about it with them... And our engagements with the government on this, with Minister Tau, are constant,” he said.
Nedbank has also finally called an end to a decade-long failed strategy for African expansion, putting up its 21% stake in Ecobank owner ETI for sale as it focuses on expanding in southern and eastern Africa.
The group had earlier signalled it was reviewing the stake, which Nedbank bought in 2014 for $500m, and has been written down to just R1.8bn (about $100m) in Nedbank’s books after a series of impairments, with a market value that is hardly higher at R1.9bn.
“We are making the right strategic call, reflecting the effort we put into this against the return we got out of it, which are asymmetrical,” Quinn said. The sale would also remove risk against Nedbank’s future performance.
Correction: August 6 2025
An earlier version of this story incorrectly stated the value of Nedbank’s stake in Ecobank had dropped to $100,000, the amount is $100m.
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