South Africa's Bold Inflation Shift: SARB Targets 3% Despite Treasury Hesitation

South Africa's central bank aims for 3% inflation, deviating from its 4.5% target, and lowers its lending rate. Despite Finance Minister Godongwana's reservations, SARB's Governor Kganyago advocates for this shift to enhance competitiveness. The policy change, though not formally approved, is seen positively in economic circles.

In a decisive move to boost competitiveness, the South African Reserve Bank (SARB) has announced its aim to lower inflation to 3%, shifting from the previous 4.5% target. This change arrives despite Finance Minister Enoch Godongwana's lack of formal approval for a new target band.

Governor Lesetja Kganyago has long argued for a narrower target, contending that the current range from 3% to 6% erodes economic competitiveness. "We had to make a judgment as a committee to lock in these gains for the benefit of South Africans," Kganyago stated during a press conference.

The SARB's decision also coincided with a reduction in the main lending rate, which dropped by 25 basis points to 7.00%. The central bank's actions were in line with economists' expectations and have been generally well-received, as South African government bonds, including the 2035 maturity, gained strength following the announcement.

(With inputs from agencies.)