OECD backs SARB push to lower South Africa’s inflation target
Lowering South Africa’s inflation target would drive economic growth and international competitiveness, said the Organisation for Economic Cooperation and Development, echoing the country’s central bank.
“Reduce the inflation target and consider reducing the band around it,” was one of the key recommendations in the OECD’s 2025 survey of Africa’s most industrialised economy, released Thursday in Johannesburg. “Formalising the focus on keeping inflation near a 3% midpoint could better support economic growth,” it said.
The comments come as the South African Reserve Bank and Treasury near completion of a long-running review of the 3%-to-6% goal, which has not changed since it was launched in 2000.
The SARB has recently stepped up its public advocacy for lowering the goal, calling the current moment — with inflation running at 2.8% — an “amazing” opportunity to make the move.
It estimates aiming for 3% would lead to lead to lower interest rates in the longer term than otherwise and save the billions of dollars in debt-service payments over a decade.
S&P Global Ratings separately said that lowering the target would be good for the economy.
But the central bank says that it won’t act without the support of Finance Minister Enoch Godongwana, in an implicit acknowledgment any such a move will carry political costs.
It will likely be fiercely opposed by those arguing a lower target means higher borrowing costs, slower growth and fewer jobs, in a country where unemployment is above 30%.
Godongwana told Bloomberg on Wednesday that he had not formed an opinion on the issue because the review had not yet delivered its recommendations.
“Once we get that report we will form an opinion and issue the appropriate statement,” he said, without saying when it would come.
Last year he said that reducing the target was low on his list of priorities – a stance that private sector economists have noted, pointing to the government’s plan to invest heavily in upgrading the country’s infrastructure which could be at odds with a lower goal by spurring inflation.
Still, the Paris-based OECD said South Africa’s inflation target band is relatively high and wide. Its major trading partners and emerging market peers, including Brazil, China and India, all have lower targets averaging at around 3%.
“Given the low current and projected inflation over coming quarters, it seems an appropriate time to undertake the change,” it said, adding that the SARB’s credibility would help keep inflation expectations well anchored.
It also noted that South Africa had still not acted on a raft of recommendation from previous OECD reports, including slowing the increase in government debt, cutting corporate taxes, raising more revenue and privatizing state-owned enterprises.
– Bloomberg
“Reduce the inflation target and consider reducing the band around it,” was one of the key recommendations in the OECD’s 2025 survey of Africa’s most industrialised economy, released Thursday in Johannesburg. “Formalising the focus on keeping inflation near a 3% midpoint could better support economic growth,” it said.
The comments come as the South African Reserve Bank and Treasury near completion of a long-running review of the 3%-to-6% goal, which has not changed since it was launched in 2000.
The SARB has recently stepped up its public advocacy for lowering the goal, calling the current moment — with inflation running at 2.8% — an “amazing” opportunity to make the move.
It estimates aiming for 3% would lead to lead to lower interest rates in the longer term than otherwise and save the billions of dollars in debt-service payments over a decade.
S&P Global Ratings separately said that lowering the target would be good for the economy.
But the central bank says that it won’t act without the support of Finance Minister Enoch Godongwana, in an implicit acknowledgment any such a move will carry political costs.
It will likely be fiercely opposed by those arguing a lower target means higher borrowing costs, slower growth and fewer jobs, in a country where unemployment is above 30%.
Godongwana told Bloomberg on Wednesday that he had not formed an opinion on the issue because the review had not yet delivered its recommendations.
“Once we get that report we will form an opinion and issue the appropriate statement,” he said, without saying when it would come.
Last year he said that reducing the target was low on his list of priorities – a stance that private sector economists have noted, pointing to the government’s plan to invest heavily in upgrading the country’s infrastructure which could be at odds with a lower goal by spurring inflation.
Still, the Paris-based OECD said South Africa’s inflation target band is relatively high and wide. Its major trading partners and emerging market peers, including Brazil, China and India, all have lower targets averaging at around 3%.
“Given the low current and projected inflation over coming quarters, it seems an appropriate time to undertake the change,” it said, adding that the SARB’s credibility would help keep inflation expectations well anchored.
It also noted that South Africa had still not acted on a raft of recommendation from previous OECD reports, including slowing the increase in government debt, cutting corporate taxes, raising more revenue and privatizing state-owned enterprises.
– Bloomberg
