Reserve Bank governor Lesetja Kganyago has moved to allay concerns about a rift between the Bank and the Treasury over changes to the inflation target, making it clear that conversations between the two continue and that the official target remains at 3%-6%.
“All that the Reserve Bank was saying was that the target range is 3%-6%. We used to aim in the middle and we said we need a policy cushion: we will aim at the bottom,” he told shareholders at the Bank’s annual general meeting on Friday. “The only reason it was done now was because inflation is already there at three,” he said.
His comments came after finance minister Enoch Godongwana pushed back against the Bank’s statement that it now “preferred” the 3% target, accusing it of “unilateral announcements that pre-empt legitimate policy deliberation”.
The minister said he had no plans to announce a move to a 3% target during the medium-term budget statement — as many in the market had expected — emphasising that policymaking in that area resided with the finance minister, working with the president and the cabinet, which set the inflation target in consultation with the Bank.
Nedbank CEO Jason Quinn was one who expressed concern last week about the apparent “dissonance” between the two highly regarded institutions.
Kganyago said at the annual general meeting there was a joint process and “we are engaged in those conversations”.
He also again countered the theory in the market that the Bank had quietly been targeting 3% for some time, keeping monetary policy tighter than it might otherwise have been.
There would be no point in a secret target, Kganyago said, since inflation expectations played a key role.
The Bank has long campaigned for a lower target, and with SA’s inflation rate anchoring in a range of 2.7%-3.2% for the past nine months it was keen to seize the moment to go ahead even though the Treasury had repeatedly said it was still working on it.
The Institute of International Finance (IIF) has also expressed concern about the lack of endorsement by the Treasury for the monetary policy shift, which it said was important for SA.
“The central banking literature is very strong on its support for central bank operational independence. However ... it recognises that it is important to have mechanisms in place that reinforce democratic legitimacy and long-run support for inflation targeting and central bank independence,” IIF deputy chief economist Ashok Bhundia said in a note on Friday.
When the inflation goal was set in consultation with and fully endorsed by the finance minister it enhanced credibility, he said.
The Bank’s financial statements show it made unusually large after-tax profits of R118bn in the year to the end of March, but Kganyago said most of that reflected the R100bn received from the Treasury as part of the new gold and foreign exchange contingency reserve account (GFECRA) settlement agreement last year.
“This strengthened our capital position so that we could pay out a portion of the GFECRA funds to the government, which is the legal owner of these balances and we could do so without selling off foreign exchange reserves,” Kganyago told shareholders.
SA’s gold and foreign exchange reserves now stand at $68bn, having grown about $20bn over the past decade.
“We are a long way from having the strongest reserve position among emerging markets but we are no longer the laggard we once were,” the governor said.
The GFECRA agreement was concluded after Godongwana announced in his February 2024 budget that the government would tap R250bn of the unrealised profits that had built up in the GFECRA, of which R150bn went to the government to reduce its debt cost and R100bn went to the Bank to bolster its balance sheet.
The Bank reported in its latest quarterly bulletin that the value of the gold component of the reserves had jumped by $7bn over the past five years thanks to a soaring gold price.
Just under a fifth of the reserves are held in gold, with the rest in foreign currencies. US dollar assets account for the bulk of SA’s foreign currency reserves but these also include the euro, Chinese yuan, Swiss franc, Canadian dollar and South Korean won assets.
Update: August 10 2025
This article has been updated to include comments from the IIF and additional information from the Reserve Bank.
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