Kganyago Signals Shift in Inflation Strategy as SARB Lowers Rates
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On Thursday, South African Reserve Bank (SARB) Governor Lesetja Kganyago announced a significant policy shift: a 25-basis-point cut to the repo rate, bringing it to 7%.
The decision, unanimously backed by the Monetary Policy Committee (MPC), also lowers the prime lending rate at commercial banks to 10.50%.
This rate adjustment comes amid heightened global trade tensions, particularly as a deadline set by U.S. President Donald Trump approaches for countries to finalise revised trade agreements.
Should these talks fail, the U.S. may impose tariffs of up to 30% on certain South African exports.
At the same time, South Africa’s economy has faltered, with first-quarter growth in 2025 slowing to just 0.1%, a downward revision that Kganyago directly addressed.
In reaction to these international pressures, the SARB reduced its full-year growth forecast.
Despite that, recent economic signals hint at a possible recovery in the second quarter.
Kganyago pointed to anticipated structural reforms that could support gradual progress and described the balance of growth risks as even.
On inflation, Kganyago highlighted how a firm rand and lower inflation expectations have helped anchor both headline CPI and core inflation; measured in June at 3% and 2.9%, respectively, well within the lower band of SARB’s target range.
However, rising meat prices have pushed food inflation higher, and fuel price reductions have not materialised as quickly as expected.
Looking ahead, the SARB forecasts average inflation of roughly 3.3% through year-end, maintaining relative price stability.
Inflation risks, according to the bank, remain balanced, providing some reassurance to markets.
During his statement, Kganyago reiterated SARB’s commitment to price stability.
“The Monetary Policy Committee now prefers inflation to settle at 3%. Consequently, we have decided to target the lower end of our inflation target range, which is between 3% and 6%,” he explained.
“We welcome the recent moderation in inflation expectations and encourage a further decline.”
He added that future MPC meetings will use forecasts assuming a 3% target.
SARB is also collaborating with the National Treasury to implement reforms aimed at keeping inflation low.
Still, the official target range has not been revised.
Addressing global headwinds, Kganyago stressed the importance of domestic reform.
“The primary contribution of the SARB is to ensure price stability,” he said.
“This presents us with a unique opportunity to affirm low inflation and subsequently reduce interest rates sustainably.”
“Changing the target appears moot at this stage,” he remarked.
Responding to media queries, Kganyago pushed back against the idea that South Africa cannot alter its inflation framework because of external shocks.
“We have an opportunity in the present moment while the economic landscape is still conducive.
Economic shocks will always occur—whether the target is set at 3%, 4.5%, or any range in between 3% to 6%.
Even targeting a lower 2% will not eliminate the possibility of shocks,” he emphasised.
He cited studies suggesting that economies with lower inflation targets tend to recover more quickly from disruptions.
Asked why formalising the new target has been slow, Kganyago acknowledged the challenges involved.
“Changing policy is never straightforward.There is no such thing as a costless policy change.
One cannot simply refuse to make a decision because there are costs involved. Remaining steadfast with the current target also incurs its own set of costs.
Ultimately, the benefits of reassessing our inflation targets outweigh these costs.”
He closed by critiquing certain attitudes toward economic policy.
“It is disconcerting when individuals say: ‘Thank you very much, I will accept the benefits without taking on any costs.’ That simply isn’t how policy-making operates.”
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