In a rare joint statement ending weeks of a public standoff over monetary policy, the Treasury and Reserve Bank said SA’s new inflation target would be announced “as soon as is practical”.
The unified stance could be seen as delivering much-needed clarity for markets. Tension flared in July when the Bank effectively adopted 3% as its guide, prompting a public rebuke from finance minister Enoch Godongwana, who labelled the move a unilateral announcement.
Monday’s joint statement strikes a truce. The macroeconomic standing committee has spent months testing whether the current target remains appropriate while most of the country’s trading partners aim for lower inflation levels.
For the past four years the Reserve Bank has called for the target to be lowered to make SA more competitive and ensure permanently lower inflation and interest rates, stepping up its campaign most recently as inflation has trended to 3% or less.
In Monday’s joint statement, the Treasury noted that it saw value in the lower target, as its 2024 Macroeconomic Policy Review “acknowledged that low and stable inflation is good for economic growth and concluded that monetary policy goals have broadly been achieved”.
According to the statement, the review also emphasised that while the current macroeconomic policy framework was fit for purpose and flexible to changing conditions, “some adjustments could make it more effective”.
The joint statement said research and consultations had highlighted specific challenges associated with a wide target band and the long-term costs to the economy and entrenched inequality caused by relatively high inflation.
“New risks to the global outlook underscore the high potential for further global shocks. Macroeconomic policy needs to be flexible and robust to these shocks and the many others that will inevitably come our way,” the statement said, calling any adjustments to the inflation target “evidence-based”.
With the technical work nearing completion, the macroeconomic standing committee will present its recommendations on the inflation target to Godongwana and Reserve Bank governor Lesetja Kganyago, after which the minister will make the announcement. The statement comes weeks after S&P Global warned that the fallout from the Bank-Treasury tug of war risked undermining monetary and fiscal policy.
At July’s monetary policy meeting, the Reserve Bank went it alone in effectively shifting SA’s inflation target to 3%, the lower end of its 3%-6% target range, surprising market players who had expected the move to come only when the minister of finance announced it during October’s medium-term budget policy statement.
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”.
He said he had no plans to announce a move to a 3% target during the medium-term budget, emphasising that policymaking resided with the finance minister, working with the president and the cabinet, which set the inflation target in consultation with the Bank.
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