Standard Bank CEO Sim Tshabalala says there is a need for clear communication around SA’s monetary policy as debate on the inflation target rages, cautioning that in the absence of clarity the outlook beyond 2025 becomes cloudy, affecting things such as wage negotiations.
The central bank has said it prefers a target of 3%. The inflation targeting regime in SA was ushered in in 2000, with the Bank in 2027 having communicated a preference of a midpoint target of 4.5%.
Tshabalala, who presides over SA’s largest lender by assets with a significant exposure to government debt, said it was clear that the authority to set the inflation target rests with the minister of finance, while the Bank has “instrument independence”, which means that it has the freedom to choose how it will aim to achieve that target.
“Standard Bank’s planning for 2025 was done on the basis that the SA Reserve Bank would continue to target the midpoint of the inflation range. Since the July monetary policy committee statement, when the Bank announced the change in its approach to implementing the target, it now seems possible that the path of interest rates will be different from what we had expected,” Tshabalala told Business Day.
“For instance, we may see fewer cuts than we had expected, and a hiking phase might begin sooner than previously expected.
“These changes would have effects on SA’s growth path, tending to slow it in the short term but probably supporting it over the longer term,” he said.
“It is also very likely that the Bank’s revised approach will cause changes to people’s inflation expectations, which will in turn affect wage negotiations and pricing and investment decisions. In other words, Standard Bank — along with every other participant in the SA economy — will need to do some rethinking and adjusting. It is only in this sense that we need the clouds to clear.”
The monetary policy committee last month said the Bank would henceforth “aim for the bottom of our inflation target range”.
This decision was questioned by the finance minister and others on the grounds that it could be interpreted as changing the inflation target.
However, the Bank’s governor, Lesetja Kganyago, told the central bank’s AGM last week that it did not seek to change the target range but has chosen to target its bottom end rather than its midpoint.
Kganyago on Tuesday doubled down on his argument on why SA is ripe to anchor its inflation target at 3%. He told the National School of Government that SA is a macroeconomic underperformer, but with the right reforms the country could do much better.
“If we can reduce interest rates through permanently lower inflation and by derisking, we can finance debt at lower costs. This would make a big difference. Just to put some indicative numbers on this, for a debt stock of R5-trillion, every percentage point you save in interest is worth R50bn,” Kganyago said.
“By contrast, a one percentage point increase in VAT raises about R30bn. And we could realistically save on debt costs.
“It is not my role to set the issuance strategy. That is the work of the National Treasury. But good monetary policy can help create opportunities for fiscal policy, which a nimble debt manager could seize,” he said.
“The objective should be unlocking a virtuous circle, where lower interest rates improve fiscal dynamics, and better fiscal dynamics in turn lower rates. Doing this requires a macroeconomic set-up where the Bank and National Treasury play complementary roles.”
Standard Bank slashed its SA growth forecast for the next two years. Tshabalala said the poor growth outlook from the bank economics team reflects the lender’s disappointment at the slow pace of structural reforms, among other headwinds, including trade wars.
“SA real GDP growth is expected to be 0.9% in 2025 and improve to 1.3% in 2026. This is lower than the 1.7% and 2% for 2025 and 2026, respectively, which we expected in March 2025,” Tshabalala said. “However, this outlook remains sensitive to developments on tariffs, including both the rate thereof and the exemptions applied.”
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