Finance Minister dismisses speculation on 3% inflation target
Finance Minister Enoch Godongwana has firmly dismissed speculation that government will formally adopt a 3% inflation target, following a recent announcement by the South African Reserve Bank's (SARB) Monetary Policy Committee (MPC).
The SARB's MPC had indicated a preference to target inflation at 3% going forward, raising expectations that the Ministry of Finance would officially endorse this shift during the upcoming Medium-Term Budget Policy Statement (MTBPS).
However, Godongwana made it clear that "Minister Godongwana has no plans to do this."
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14 hours ago
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Words on wealth: why are interest rates still high when inflation is so low?
Explore the complex dynamics between interest rates and inflation in South Africa, as we analyse the South African Reserve Bank's strategies and their impact on the economy. Image: Bloomberg Inflation is something we can't avoid – it's a bit like death and taxes. Traditionally, South Africa has had high inflation in comparison with developed countries, and that's a fundamental reason why the rand has steadily declined against the currencies of those countries. The Covid-19 pandemic upended that trend, and who knows what the effects of US tariffs will be. Whether we return to what now seems was a much safer, more stable world before Covid remains to be seen. As of June, our year-on-year Consumer Price Index inflation rate was 3.0%. Over the years, the SA Reserve Bank (SARB), through controlling interest rates, has done an admirable job of keeping inflation within its target range of 3-6%, for the most part. In comparison with other African countries, our inflation is low. Zimbabwe is an obvious example of a collapsing economy with runaway inflation, but even in countries with stable, growing economies, inflation is a problem. Nigeria has inflation of over 22%, according to Trading Economics; Egypt's rate is about 15%; and Rwanda's is over 8%. Kenya and Namibia are in a similar band to us – their current rates are 3.8% and 3.7% respectively. Looking further abroad, Brazil's rate is 5.4% and Turkey's is a terrifying 35.1%. Recently, the SARB has said it wants to bring the inflation target down so that 3% becomes the middle of the target band. Ironically, to do this, it would need to keep interest rates high, and I would suggest that they are too high as it is. Inflation rate vs interest rate In the following exercise, I compare the CPI inflation rate with the prevailing interest rate (the bank repurchase, or repo rate, as determined by the SA Reserve Bank). A fair comparison of the two rates involves percentages of percentages, which sounds complicated, but bear with me. Before Covid, inflation was averaging 4.5%, smack in the middle of the SARB's target range of 3-6%, and the repo rate was averaging 6.75%. Therefore, the repo rate was 50% higher than the inflation rate. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ Ad Loading When Covid hit, the economy froze and inflation plummeted, reaching a low of 2.1% in May 2020. By then, the SARB had already started slashing the repo rate – it plunged from 6.25% in February 2020 to 3.5% at the end of July, remaining at that record low for over a year. For most of that time, between July 2020 and March 2021, inflation hovered around 3.1%. The difference between the two rates was minor: the repo rate was just 13% higher than the inflation rate. By the end of the pandemic, inflation had soared, reaching a high of 7.8% in July 2022. Over the following two years, it steadily declined to 2.8% in October 2024, and it has averaged about 2.9% since then. When inflation was at 7.8% in July 2022, the repo rate was 5.5% – in other words, the repo rate was about 30% lower than the inflation rate, in a rare reversal. But by then, the SARB was rapidly hiking the repo rate to catch up with the high inflation, so that by July 2023, the repo rate reached a high of 8.25%. It remained there for a year, until July 2024, by which time inflation had dropped to 4.6%. The rates had righted themselves: the repo rate was now 80% higher than the inflation rate. Fast forward to June this year. 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IOL News
16 hours ago
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Finance Minister dismisses speculation on 3% inflation target
Finance Minister Enoch Godongwana has dismissed speculation about a formal shift to a 3% inflation target, affirming that any changes will follow due consultation with the Reserve Bank, Cabinet, and other stakeholders. Finance Minister Enoch Godongwana has firmly dismissed speculation that government will formally adopt a 3% inflation target, following a recent announcement by the South African Reserve Bank's (SARB) Monetary Policy Committee (MPC). The SARB's MPC had indicated a preference to target inflation at 3% going forward, raising expectations that the Ministry of Finance would officially endorse this shift during the upcoming Medium-Term Budget Policy Statement (MTBPS). However, Godongwana made it clear that "Minister Godongwana has no plans to do this."
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