SARB Governor: New 3% Inflation target is non-negotiable
South African Reserve Bank (SARB) Governor Lesetja Kganyago says the newly stated inflation target of 3% will be non-negotiable and will have to be achieved at all material times. Kganyago made the remarks following the announcement of the repo rate, which was reduced by 25 basis points, bringing it down to 6.75% with effect from 21 November 2025.
From a target range to a point target
This follows a recent decision by South African finance minister Enoch Godongwana and Kganyago to move away from the inflation-targeting framework — which aimed to keep inflation within a 3–6% band instituted under then-SARB Governor Tito Mboweni — to a new target that aims to keep inflation firmly at 3%, with a tolerance band of 1 percentage point either side.
“To support communication and accountability, we therefore want it understood that inflation will not always be precisely 3%. When there are deviations, we will explain what has driven inflation away from target, and we will do what is required to get back to target,” he said.
While achieving the stated inflation target would be challenging, Kganyago stressed the need for the SARB to ensure it always achieves its objective.
“The tolerance band, of 1 percentage point either side of 3%, does not mean we will be indifferent to inflation anywhere between 2% and 4%. We want to be at 3%,” Kganyago said.“However, no central bank has the tools to deliver inflation at an exact point all the time. As flexible inflation targeters, we also recognise that trying to offset all price shocks would create undesirable volatility in output,” he added.
Why the repo rate was cut
The SARB expects to achieve its new firm inflation target over the next year or two, Kganyago said.“Monetary policy actions have their main effects on prices after 12 to 24 months, so you should expect us to achieve our target over that horizon. Accordingly, we want longer-run expectations to anchor at 3%, staying there even when there are shocks. This lag, between monetary policy decisions and outcomes, also explains why the 3% target is taking effect now, but will be achieved over the forecast period,” Kganyago said.
Kganyago was upbeat that the Reserve Bank was moving in the right direction following the shift in monetary policy.
“For inflation expectations, we do not have an update from our usual survey this meeting, but market rates and surveys of analysts both show further progress towards the 3% objective,” he said. According to him, core goods prices were benefiting from exchange-rate strength. “Food price inflation seems to have peaked, although we have a small upward revision to this forecast, mainly from beef prices. Services inflation is unchanged from the last meeting: the announced medical aid increases are lower than last year’s; at the same time, housing inflation has accelerated, which warrants ongoing scrutiny,” he said.
Against this backdrop, the SARB’s Monetary Policy Committee decided to reduce the policy rate by 25 basis points, Kganyago explained.
“The decision was unanimous. Members agreed there was scope now to make the policy stance less restrictive, in the context of an improved inflation outlook. The quarterly projection model continues to forecast gradual rate cuts as inflation subsides. As before, this rate path remains a broad policy guide. Our decisions will continue to be taken on a meeting-by-meeting basis, with careful attention to the outlook, data outcomes, and the balance of risks to the forecast.
”Bank of Namibia welcomes the moveThe Bank of Namibia (BoN) has voiced its support for the policy shift, saying it will result in lower and more stable long-term inflation in Namibia.“An analysis carried out by the BoN found that a lower inflation target of 3% in South Africa will result in low and stable long-term inflation in Namibia, which is ultimately good for the objective of price stability,” central bank Governor Johannes !Gawaxab said in a statement.
“Moreover, the eventual decline in inflation is expected to lead to a reduction in interest rates in the medium term. Mindful of the envisaged benefits of the lower inflation target, the Bank of Namibia welcomes the new target, as this could enhance welfare and macroeconomic stability for Namibia,” he added.
Bitly: //q.my.na/96I1
From a target range to a point target
This follows a recent decision by South African finance minister Enoch Godongwana and Kganyago to move away from the inflation-targeting framework — which aimed to keep inflation within a 3–6% band instituted under then-SARB Governor Tito Mboweni — to a new target that aims to keep inflation firmly at 3%, with a tolerance band of 1 percentage point either side.
“To support communication and accountability, we therefore want it understood that inflation will not always be precisely 3%. When there are deviations, we will explain what has driven inflation away from target, and we will do what is required to get back to target,” he said.
While achieving the stated inflation target would be challenging, Kganyago stressed the need for the SARB to ensure it always achieves its objective.
“The tolerance band, of 1 percentage point either side of 3%, does not mean we will be indifferent to inflation anywhere between 2% and 4%. We want to be at 3%,” Kganyago said.“However, no central bank has the tools to deliver inflation at an exact point all the time. As flexible inflation targeters, we also recognise that trying to offset all price shocks would create undesirable volatility in output,” he added.
Why the repo rate was cut
The SARB expects to achieve its new firm inflation target over the next year or two, Kganyago said.“Monetary policy actions have their main effects on prices after 12 to 24 months, so you should expect us to achieve our target over that horizon. Accordingly, we want longer-run expectations to anchor at 3%, staying there even when there are shocks. This lag, between monetary policy decisions and outcomes, also explains why the 3% target is taking effect now, but will be achieved over the forecast period,” Kganyago said.
Kganyago was upbeat that the Reserve Bank was moving in the right direction following the shift in monetary policy.
“For inflation expectations, we do not have an update from our usual survey this meeting, but market rates and surveys of analysts both show further progress towards the 3% objective,” he said. According to him, core goods prices were benefiting from exchange-rate strength. “Food price inflation seems to have peaked, although we have a small upward revision to this forecast, mainly from beef prices. Services inflation is unchanged from the last meeting: the announced medical aid increases are lower than last year’s; at the same time, housing inflation has accelerated, which warrants ongoing scrutiny,” he said.
Against this backdrop, the SARB’s Monetary Policy Committee decided to reduce the policy rate by 25 basis points, Kganyago explained.
“The decision was unanimous. Members agreed there was scope now to make the policy stance less restrictive, in the context of an improved inflation outlook. The quarterly projection model continues to forecast gradual rate cuts as inflation subsides. As before, this rate path remains a broad policy guide. Our decisions will continue to be taken on a meeting-by-meeting basis, with careful attention to the outlook, data outcomes, and the balance of risks to the forecast.
”Bank of Namibia welcomes the moveThe Bank of Namibia (BoN) has voiced its support for the policy shift, saying it will result in lower and more stable long-term inflation in Namibia.“An analysis carried out by the BoN found that a lower inflation target of 3% in South Africa will result in low and stable long-term inflation in Namibia, which is ultimately good for the objective of price stability,” central bank Governor Johannes !Gawaxab said in a statement.
“Moreover, the eventual decline in inflation is expected to lead to a reduction in interest rates in the medium term. Mindful of the envisaged benefits of the lower inflation target, the Bank of Namibia welcomes the new target, as this could enhance welfare and macroeconomic stability for Namibia,” he added.
Bitly: //q.my.na/96I1
