{"id":32607,"date":"2025-06-26T04:59:07","date_gmt":"2025-06-26T04:59:07","guid":{"rendered":"https:\/\/financialrush.com\/?p=32607"},"modified":"2025-06-26T04:59:07","modified_gmt":"2025-06-26T04:59:07","slug":"investors-press-south-africa-to-lower-inflation-target","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=32607","title":{"rendered":"Investors press South Africa to lower inflation target"},"content":{"rendered":"<p> \n<\/p>\n<div>\n<p>Unlock the Editor\u2019s Digest for free<\/p>\n<p class=\"article__content-sign-up-topic-description o3-type-body-base\"><span>Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=88b216e4-fcaf-4fcd-a962-80d1bac15c59\"><\/iframe><\/div>\n<div id=\"article-body\">\n<p>Investors are pushing for South Africa\u2019s government to endorse a plan by its central bank to cut its inflation target for the first time this century, in the\u00a0hopes it will permanently lower the borrowing costs of Africa\u2019s most industrialised nation.<\/p>\n<p>Portfolio managers said a rally in South African bonds and the rand in recent weeks has partly reflected bets that the country\u2019s treasury will sign off by early next year on lowering the South African Reserve Bank\u2019s official inflation target to 3 per cent from 3 to 6 per cent currently.<\/p>\n<p>Asset managers, hedge funds and others have been preparing for missives and meetings with the National Treasury to back\u00a0the change, with some advising that it will need a careful transition, said people\u00a0familiar with the matter. <\/p>\n<p>At stake is one of the most important levers for managing South Africa\u2019s economy and potentially lifting it out of years of stagnation. <\/p>\n<p>South African inflation remained below 3 per cent in May, even as interest rates are currently 7.25 per cent.<\/p>\n<p>The base rate means the prime lending rate used to price South African bank loans and mortgages is close to 11 per cent. It also feeds into yields on government bonds, which are about 10 per cent for 10-year debt. <\/p>\n<p>The upper end of South Africa\u2019s target is relatively high by the standards of big developing nations, such as Brazil, which since 2018 has <a href=\"https:\/\/www.bcb.gov.br\/en\/monetarypolicy\/historicalpath\" data-trackable=\"link\">reduced<\/a> its inflation target from 4.5 per cent to 3 per cent, with a \u2018tolerance range\u2019 of 1.5 per cent on either side. <\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A9c35413e-c45b-4cf8-92a4-5e6380dfa333?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A9c35413e-c45b-4cf8-92a4-5e6380dfa333?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A9c35413e-c45b-4cf8-92a4-5e6380dfa333?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A9c35413e-c45b-4cf8-92a4-5e6380dfa333?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A9c35413e-c45b-4cf8-92a4-5e6380dfa333?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=700&amp;dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Aa529ca51-3782-4356-b9ae-63ed3dedadec?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Aa529ca51-3782-4356-b9ae-63ed3dedadec?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Aa529ca51-3782-4356-b9ae-63ed3dedadec?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=490&amp;dpr=3 3x\" width=\"1500\" height=\"2000\"\/><\/picture><\/figure>\n<p>Supporters of a lower target in South Africa say its central bank\u2019s strong record in keeping inflation low in recent years has made it the right time to align the country with other emerging markets that have used lower targets to help anchor investment.<\/p>\n<p>Lower interest rates would\u00a0help reduce debt costs for South Africa as it grapples with the long-term threat a weak economy poses to public finances.<\/p>\n<p>\u201cIf you want to do it, there is hardly a better time than now,\u201d said an investor who recently attended meetings on the subject with officials, citing low inflation, a buoyant rand, and strong trade such as a revival in prices for gold and platinum \u2014 two key exports for South Africa.<\/p>\n<p>But transitioning to a lower target could also be a political minefield for President Cyril Ramaphosa\u2019s fragile coalition government, which needed three attempts to pass a budget this year because of <a href=\"https:\/\/www.ft.com\/content\/158d18f5-78b8-46ea-b4f5-947f6fef5208\" data-trackable=\"link\">divisions<\/a> among parties on economic policy. <\/p>\n<p>Expectations for price and wage increases would have to be carefully managed in South Africa\u2019s deeply unequal post-apartheid society.<\/p>\n<p>The central bank\u00a0used a monetary\u00a0policy\u00a0decision\u00a0in May to <a href=\"https:\/\/www.resbank.co.za\/content\/dam\/sarb\/publications\/statements\/monetary-policy-statements\/2025\/may\/Three%20percent%20scenario%20report.pdf\" data-trackable=\"link\">model<\/a>\u00a0how it would potentially have acted\u00a0had the lower inflation target been in place. <\/p>\n<p>\u201cInflation targeting has been in South Africa for 25 years. This is our best chance in 25 years,\u201d\u00a0Lesetja Kganyago, governor\u00a0of the South African Reserve Bank told the Financial Times.<\/p>\n<p>He compared doubts about South Africa\u2019s ability to fight inflation to the so-called fear of floating in central banking, when policymakers hesitate to abandon long-held fixed exchange rates. <\/p>\n<p>\u201cYou have got a central bank that can swim, so it can keep this inflation down\u2009.\u2009.\u2009.\u2009nobody will drown,\u201d he said.<\/p>\n<p>The bank estimates that the \u2018sacrifice ratio\u2019 of a change, or how much growth might be sacrificed through different monetary policy to hit the target, is almost zero as a share of GDP, though some analysts contest this.<\/p>\n<p>\u201cThe high and wide inflation target keeps long-term inflation risks higher than they need to be, depressing economic growth and deepening inequality,\u201d a <a href=\"https:\/\/www.resbank.co.za\/content\/dam\/sarb\/publications\/working-papers\/2025\/less-risk-more-reward.pdf\" data-trackable=\"link\">paper<\/a> by the bank\u2019s economists said in May. <\/p>\n<p>The Reserve Bank has already de facto targeted 4.5 per cent inflation, or the midpoint of the current target, since 2017. Kganyago became governor in 2014.<\/p>\n<p>One key challenge of introducing a lower target would be for Ramaphosa\u2019s African National Congress, the biggest party in the coalition, to restrain wage increases for civil servants and price hikes by state companies and municipalities.<\/p>\n<p>\u201cYou have to get ducks in a row, this is not a simple change \u2014 there is a huge amount of political socialisation work to do that the market doesn\u2019t consider,\u201d said Peter Attard Montalto, managing director at South African consultancy Krutham.<\/p>\n<p>South Africa\u2019s public sector workforce is dominated by trade unions that often negotiate wages based on recent inflation numbers. This could make it hard to bed in a new target, said Daan Steenkamp, head of Codera Analytics, an economic research firm.<\/p>\n<p>About a third of South Africa\u2019s basket of consumer prices is also influenced by government, such as utilities, public transport, and education, he added. <\/p>\n<p>\u2018Administered\u2019 prices, set by government bodies or regulators, still often outpace overall inflation. \u201cThat means government buy-in is important if we are to have a lower inflation target,\u201d Steenkamp said. <\/p>\n<p>The National Treasury did not respond to a request for comment.<\/p>\n<\/div>\n\n<br \/><a href=\"https:\/\/www.ft.com\/content\/88b216e4-fcaf-4fcd-a962-80d1bac15c59\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this&hellip;\n","protected":false},"author":6,"featured_media":32608,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":["post-32607","post","type-post","status-publish","format-standard","has-post-thumbnail","category-us","cs-entry","cs-video-wrap"],"_links":{"self":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/32607","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=32607"}],"version-history":[{"count":0,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/32607\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/media\/32608"}],"wp:attachment":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=32607"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=32607"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=32607"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}