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The Push to Lower South Africa’s Inflation Target Amid a Struggling Economy
- Ghost Writer
- Jul 26
- 2 min read
One moment, the economy looks hopeful.
Inflation is cooling. The rand is rising.
Investors are smiling.
Then you blink and reality strikes.
Over 33% of South Africans can’t find jobs.
Electricity prices are climbing 15% a year.
And the economy grew just 0.6% last year (2024).
And now, in the middle of all this, South Africa is about to make a bold move: lowering its official inflation target.
Why the Inflation Target Is Under Review
Since 2000, the country has used a 3% to 6% inflation range, with a 4.5% midpoint. But recent data has started to shake that foundation. By March 2025, inflation had cooled significantly, reaching 2.7% — a level not seen in several years. It held steady at 2.8% through April and May, showing continued downward pressure on consumer prices.
In light of these figures, the South African Reserve Bank, led by Governor Lesetja Kganyago, is considering setting a more focused inflation goal, possibly aiming directly for a 3% target instead of the broader current range.
So far, investors seem encouraged.
In May 2025, the rand appreciated by 1.1%, and bond yields dropped, early signs that the financial sector supports the SARB’s thinking. The Economy Is Still Fragile Underneath the market confidence, South Africa faces major hurdles:
Unemployment is still above 33%.
Economic growth for 2025 is expected to remain modest, with estimates ranging from 1.2% to 1.7%.
The government’s budget shortfall stood at 4.6% of GDP during the 2023/2024 financial year.
Ongoing electricity shortages, rising tariffs (between 12% and 15% annually), and aging infrastructure continue to slow down productivity.
Adopting a lower inflation target might require stricter monetary policy, which could unintentionally hold back economic recovery. Political Resistance and Public Doubts Not everyone is on board with this shift. Labor unions and opposition lawmakers have raised concerns, arguing that the focus should be
on creating jobs, not just maintaining price stability. Some have even suggested raising the midpoint to 6% to allow for more economic flexibility. Decision Delayed — For Now Discussions between the South African Reserve Bank and the National Treasury have progressed significantly, signaling that a decision may not be far off. In May 2025, Deputy Finance Minister David Masondo hinted at an upcoming announcement. But by July 8, Finance Minister Enoch Godongwana stepped in with a word of caution. He emphasized the need for careful planning, political alignment, and full understanding of the potential social impacts. South Africa stands on a razor’s edge. Lowering the inflation target could help build a stronger, more stable financial system — but if rushed or mismanaged, it could deepen the cracks already visible in the economy. Because at the heart of this isn’t just numbers or targets.
It’s a choice about the kind of future South Africa is ready to fight for.
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