Finance Minister Lowers Inflation Target to Three Percent

Finance Minister Enoch Godongwana has announced a significant policy shift by reducing South Africa’s inflation target to 3%, with a one percentage point tolerance band. The announcement was made during his presentation of the Medium-Term Budget Policy Statement in Parliament on Wednesday afternoon.

The decision marks a historic change in the country’s monetary policy framework and aims to bring South Africa in line with international best practice. For years, the inflation target range of between 3% and 6% has been a point of debate between the National Treasury and the South African Reserve Bank.

Godongwana said the move would ultimately benefit ordinary South Africans, particularly cash-strapped households battling rising costs. “Over time, the lower target will decrease inflation expectations and inflation, creating room for lower interest rates. This supports household spending and business investment, boosting economic growth and job creation,” he explained.

He acknowledged that adopting a 3% inflation target may temporarily slow gross domestic product and revenue growth but emphasised that the long-term benefits would outweigh the short-term costs. “The short-term fiscal costs of a lower target, which include lower nominal GDP and revenue growth, will make achieving fiscal targets more challenging,” he added.

Economists have for years urged government to revise its inflation target, noting that South Africa’s average inflation rate has remained higher than that of its major trading partners and emerging market peers.

The Reserve Bank is now expected to gradually steer inflation towards the new 3% target over the next two years, signalling a tighter monetary stance in the short term but improved economic stability in the future.