SARB Unilaterally Adjusts Inflation Target as Policy Tensions Surface With Finance Ministry

Source: Reuters. Rogan Ward/File Photo. South Africa's Reserve Bank Governor Lesetja Kganyago addresses the media during a press conference concluding the G20 finance meeting in Durban, South Africa, July 18, 2025.

South African Reserve Bank Governor Lesetja Kganyago has been pushing for a lower target for years, saying the current 3%-6% target band is too wide and erodes the competitiveness of Africa's biggest economy.

Finance Minister Enoch Godongwana has been more reluctant to change the target, and the decision ultimately rests with him. He said earlier this month that discussions between the National Treasury and Sarb on the target should not be rushed.

Asked whether the Sarb had discussed its new preference for 3% inflation with Godongwana before Thursday's announcement, Kganyago said the Monetary Policy Committee does not discuss its policy decisions with anyone ahead of time.

"We had to make a judgment as a committee to say ... we can lock in these gains and make sure that South Africans benefit from them," he told a press conference.

"Changing policy is never easy. There is no such thing as a costless policy. What you can't do is to refuse to make a decision, because there are costs to a policy. There are costs in sticking to the existing target as well."

In a written response to questions about the Sarb's decision, Finance Minister Godongwana said the Treasury would not discuss its interactions with the central bank through the media.

"If there is going to be any comment on this matter, it will be through our normal meetings and then during the Medium Term Budget Policy Statement (MTBPS), as I have previously stated," he said.

South African government bonds, including the 2035 maturity, strengthened on the Sarb's commitment to lowering inflation.

"De facto South Africa now has a 3.0% preferred level of inflation, and monetary policy will now work towards its achievement. This is a significant macroeconomic positive," said Razia Khan, chief economist for Africa and Middle East at Standard Chartered.

Thursday's rate cut, by 25 basis points to 7.00%, was in line with the median forecast of a Reuters poll of economists.

The MPC was unanimous in its decision.

Headline inflation rose to 3.0% year on year in June from 2.8% in May after being below the target range for three months running.