South Africa’s move to a lower 3% inflation target may be phased in by the end of 2027, potentially resulting in official interest rates moderating to below 6%, Bank of America said.

“We think moving to 3% is almost certain,” Tatonga Rusike and Mikhail Liluashvili, respectively an economist and strategist at the bank, said in a note. “The phase-in period could be two years — announced by end-2025, and the target reached by end-2027.”

Under that scenario, the lender sees the benchmark lending rate at 5.75% by the end of 2027.

South Africa’s monetary policy committee is meeting on Thursday to discuss its latest interest-rate stance and is widely expected to reduce borrowing costs by another 25 basis points to 7%. At its May meeting, the central bank said research showed that lowering the inflation target to 3% would lead to the benchmark declining to 5.79%, compared to its baseline showing the rate remaining above 7%.

While the long-term benefits of lowering the target would outweigh the short-term costs, the shift may have fiscal consequences, Bank of America said.

“The Treasury could lose some tax revenues associated with higher inflation,” it said. “Nominal government revenues could increase at a slower pace due to lower nominal GDP growth.”

Conversely, interest rates would be sustained at lower levels, potentially helping boost private-sector credit and economic growth, it said.

While technical work is under way to review South Africa’s inflation target, which hasn’t been adjusted in more than a quarter century, the nation’s finance minister has warned against rushing the process.

Central bank Governor Lesetja Kganyago has argued that the current tame inflation environment — with annual price growth currently at 3% — provides the opportunity to lock in lower inflation at a low cost.