Kganyago says discussions are ongoing to bring down inflation target

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South African Reserve Bank (SARB) Governor Lesetja Kganyago says discussions are ongoing between the central bank and the National Treasury around bringing down its inflation target. Currently, this stands at a range of 3 to 6 %. But Kganyago says the existing target is on the high side.

He was in conversation with SABC News, sharing his past 10-year experience as Governor of the Reserve Bank and the outlook for monetary policy over the next five years.

Kganyago is of the view that through all the economic challenges that have beset the country, the SARB had done its best to live up to its constitutional mandate.

“When one looks back, we had difficult situations economically that we had to deal with and globally we had faced challenges as central banks and I could categorically say we acted true to our mandate and we did that independently without fear and without favour.”

The Governor talked about a number of concerns that he and his colleagues have had to contend with as they look to implement monetary policy. These include structural constraints in the local economy that continue to hamper growth but also the impact of external forces on key things like the local currency.

“As a small open economy that SA is the monetary policy decisions of the developed world now have got a disproportionate influence on the behaviour of our exchange rate. So, every time there’s an indication that the federal reserve might be cutting or not cutting rates, you see the rand moving in different directions,” Kganyago added.

Kganyago has been a keen advocate of bringing down the SARB’s 3 to 6 % inflation target, arguing that there’s no virtue to be had in high inflation, given that it erodes the value of the money in citizens’ pockets.

He says no final decision has been taken yet on what a new inflation target will look like but that there are moves to bring it down in consultation with National Treasury adding that significant technical work is underway in this regard.

“The important thing is to make sure that the process to arrive at the target is robust, is evidence-based, you identify the risks attendant to the movement towards that target, you are able to set a timeline to achieve that target. Importantly, that you have in the toolbox of the central bank, the ability to mitigate against the risks that might be associated with the move towards the target.”

Meanwhile, the Governor says the SARB should be presenting its strategic vision to Parliament for the next five years, up to 2030, sometime in July this year.