South Africa’s Kganyago Proposes “Point Target” Over Target Range

The governor of South Africa’s central bank, Lesetja Kganyago, has made the case to adopt an inflation “point target” of around 3% or 4% with a margin of error on either side, as opposed to a 3% to 6% target range used currently.

Speaking during a virtual address on inflation-targeting at Stellenbosch University on Wednesday, Kganyago says, “A more appropriate target would be a point target of around 3% or 4%, putting us in the same territory as our peers,” without saying which countries he was referring to.

According to him, the uncertainties around inflation would be useful to bracket the point target with an error range: probably plus or minus 1 percentage point.

He adds that “with the COVID-19 shock, we have seen what it’s like to have inflation rates nearer 3% and, with that, low-interest rates.”

South Africa’s annual consumer inflation has since picked up to 4.6% in July, the latest month for which data are available, close to the midpoint of the bank’s target.

South Africa’s Reserve Bank cut its main lending rate by 300 basis points last year to a record low of 3.5% as inflation collapsed during the coronavirus crisis and as the economy needed support.

The bank has kept monetary policy accommodative, leaving the repo rate on hold for the past six meetings.

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