The National Treasury and the South African Reserve Bank (SARB) have issued a rare joint statement to provide an update regarding the progress being made in ongoing deliberations over the future of the inflation-target band.

The statement confirms that the technical work conducted by the Macroeconomic Standing Committee (MSC), which includes members from both institutions, is drawing to a close, and that the draft recommendations will be tabled before Finance Minister Enoch Godongwana and SARB Governor Lesetja Kganyago.

“The Minister of Finance and governor will agree on any changes to the target band.

“The Minister of Finance will make a formal announcement as soon as is practical to anchor expectations,” the joint statement reads.

The update comes amid media reports of tensions between Godongwana and Kganyago on the issue, with Godongwana having used his Budget Vote address in July to underline that the responsibility for setting the inflation-target policy resided with the Finance Minister, in consultation with the governor.

The joint statement reaffirmed that South Africa continued to target inflation within the 3% and 6% range, and that the SARB had been focusing on anchoring inflation at the midpoint of the range, or 4.5%, since 2017.

However, it added that research and consultations had highlighted challenges associated with a wide target band, as well as the long-term costs to the economy and entrenched inequality caused by relatively high inflation. 

It also highlighted that the SARB’s Monetary Policy Committee expressed its preference in July for consumer price inflation to remain “around the bottom end of the current target range of 3% to 6%”. 

“Similarly, National Treasury, in 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.

“The review also emphasised that, while the current macroeconomic policy framework is fit for purpose and flexible to changing conditions, some adjustments could make it more effective,” the statement reads.

It adds that the MSC has, thus, undertaken technical work to assess the appropriateness of the inflation target.

While stressing that macroeconomic policy, including adjustments to the inflation target, will be evidence based, the statement also points to new risks to the global outlook and the potential for further global shocks.

“Macroeconomic policy needs to be both flexible and robust to these shocks and the many others that will inevitably come our way.”