{"id":834803,"date":"2025-08-12T21:50:44","date_gmt":"2025-08-12T19:50:44","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=834803"},"modified":"2025-08-12T21:52:19","modified_gmt":"2025-08-12T19:52:19","slug":"kganyago-explains-why-he-went-over-national-treasurys-head-on-3-target","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/834803\/kganyago-explains-why-he-went-over-national-treasurys-head-on-3-target\/","title":{"rendered":"Kganyago explains why he went over National Treasury&#8217;s head on 3% target"},"content":{"rendered":"\n<p>South Africa\u2019s central bank chief Lesetja Kganyago doubled down on his preference for a 3% inflation target, arguing that a lower goal could improve the country\u2019s risk profile, reduce debt levels, and curb price-growth volatility.<\/p>\n\n\n\n<p>He also noted that nine consecutive months of inflation being near 3% was something that couldn&#8217;t be ignored, nor could he let the opportunity slip away.<\/p>\n\n\n\n<p>\u201cThis is something we hope to deliver with our new preference for having inflation settle at the lower end of our 3% to 6% target range,\u201d Kganyago said in a\u00a0<a href=\"https:\/\/www.resbank.co.za\/content\/dam\/sarb\/publications\/speeches\/speeches-by-governors\/2025\/kganyago-price-stability.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">speech<\/a>\u00a0posted on the bank\u2019s website on Tuesday. <\/p>\n\n\n\n<p>\u201cThis cannot be a promise, but it can be a serious aspiration.\u201d<\/p>\n\n\n\n<p>The central bank announced last month that it now prefers inflation to settle at 3% \u2014 the bottom of its target band, a move that drew disapproval from Finance Minister Enoch Godongwana who is yet to sign off on a new goal. <\/p>\n\n\n\n<p>The National Treasury and the bank have been involved in technical work since February last year to formally adjust the current target.<\/p>\n\n\n\n<p>The current 3% to 6% target band has been in place for 25 years and since 2017 the central bank has indicated that it prefers to anchor inflation expectations at the midpoint.&nbsp;<\/p>\n\n\n\n<p>In the bank\u2019s modeling framework, the neutral policy rate is about 7.25%. \u201cOf this, 4.5 percentage points is inflation compensation and 2.75 percentage points is attributed to global rates plus country risk,\u201d the governor said.<\/p>\n\n\n\n<p>\u201cIf we lower inflation to 3%, then we can take 1.5 percentage points of inflation out,\u201d Kganyago said. <\/p>\n\n\n\n<p>\u201cLowering inflation to 3% will also reduce inflation volatility and country risk, the latter, perhaps by half a percent. As country risk and inflation falls, we could aim for a neutral policy rate of something more like 5.25%.\u201d<\/p>\n\n\n\n<p>South African inflation being near the floor of the monetary policy committee\u2019s target range for nine successive months, presents an opportune moment to lower the target, he said.<\/p>\n\n\n\n<p>\u201cOpportunity knocks, and over the past year that opportunity has come fast,\u201d Kganyago said. \u201cGiven the strong case for moving to a lower target at some point, it did not make sense to ignore this.\u201d<\/p>\n\n\n\n<p>Permanently lower inflation \u2014 and the resulting decline in interest rates \u2014could also ease government borrowing costs and support efforts to stabilize the debt trajectory.<\/p>\n\n\n\n<p>In its budget, the Treasury projected that public debt would&nbsp;<a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2025-05-21\/highlights-of-south-african-finance-minister-s-reworked-budget\" target=\"_blank\" rel=\"noreferrer noopener\">peak<\/a>&nbsp;at 77.4% of gross domestic product in the year through March 2026, slightly higher than previous forecasts.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>South Africa\u2019s central bank chief Lesetja Kganyago doubled down on his preference for a 3% inflation target, giving reasons for the sudden shift in policy that is yet to be approved by the National Teeasury. https:\/\/businesstech.co.za\/news\/finance\/834803\/kganyago-explains-why-he-went-over-national-treasurys-head-on-3-target\/<\/p>\n","protected":false},"author":59,"featured_media":817298,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[21522,3796,2924],"class_list":["post-834803","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-inflation-target","tag-national-treasury","tag-reserve-bank"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/834803","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=834803"}],"version-history":[{"count":2,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/834803\/revisions"}],"predecessor-version":[{"id":834808,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/834803\/revisions\/834808"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/817298"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=834803"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=834803"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=834803"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}