SA Weighs Narrower Inflation Target as SARB Stresses Evidence-Based Approach

The Ministry of Finance and the South African Reserve Bank (SARB) have reaffirmed their commitment to evidence-based decision-making as government considers whether to adjust the country’s official inflation target. This review comes amid a global climate of rising public debt, shifting inflation expectations, and renewed emphasis on macroeconomic stability.

Current Framework and Targets

South Africa has, since 2000, followed an inflation-targeting framework, with the SARB mandated to keep consumer price inflation between 3% and 6%. Since 2017, the central bank has expressed a preference for anchoring inflation closer to the midpoint of the range at 4.5%.

However, research and consultations conducted by the National Treasury and SARB have highlighted concerns that a wide target band may introduce uncertainty and impose long-term costs on the economy. Elevated inflation, even when within the target range, has also been linked to entrenched inequality and reduced growth prospects.

Post-Pandemic Shift

With the surge in inflation that followed the COVID-19 pandemic now receding, officials have turned their attention to aligning South Africa’s inflation outcomes more closely with those of its major trading partners, many of which target inflation closer to 2%.

According to a joint statement released on Monday, inflation expectations in South Africa have shifted downward over the past year, in line with softer outcomes. This has reinforced the SARB’s view, expressed at its July 2025 Monetary Policy Committee (MPC) meeting, that inflation should remain near the bottom end of the current band.

National Treasury’s 2024 Macroeconomic Policy Review reached a similar conclusion, affirming that low and stable inflation supports economic growth and that monetary policy has broadly achieved its objectives in recent years.

Technical Work and Policy Review

To ensure the review is thorough, the Macroeconomic Standing Committee (MSC) — a joint platform of the Treasury and SARB — has undertaken technical assessments of the current target’s appropriateness. This includes evaluating the benefits of a narrower or lower band and studying international experiences.

Once this technical work is finalised, the MSC will draft formal recommendations for both the Minister of Finance and the SARB Governor. Any changes to the inflation target would be jointly agreed upon before the Minister makes a formal announcement, aimed at anchoring public and market expectations.

Balancing Flexibility and Stability

Officials stressed that South Africa’s macroeconomic policy framework remains fit for purpose and flexible enough to adapt to changing domestic and global conditions. However, refinements — including a potential adjustment to the inflation target — could improve the effectiveness of monetary policy in safeguarding growth and stability.

The joint statement emphasised the need for policy that is robust yet adaptable:

“Since the pandemic and its aftermath, domestic inflation has eased, and the debt trajectory tempered. Monetary policy has been effective, and fiscal policy is actively moving to a more sustainable path for public finances. Nonetheless, new risks to the global outlook underscore the high potential for further global shocks. Macroeconomic policy needs to be both flexible and robust to these shocks and the many others that will inevitably come our way.”

Global and Domestic Implications

Globally, inflation and rising debt have renewed the debate over the importance of credible, rules-based frameworks in fostering investor confidence and protecting vulnerable economies. For South Africa, aligning inflation more closely with trading partners could enhance competitiveness, reduce financing costs, and improve long-term growth prospects.

Domestically, lowering inflation is particularly critical for low-income households, who are disproportionately affected by rising food, fuel, and transport costs. A narrower target could therefore serve not only macroeconomic objectives but also contribute to reducing inequality.

Next Steps

The timeline for any formal adjustment has not yet been set. However, officials indicated that recommendations from the MSC are nearing completion, after which the Minister of Finance will make a formal announcement.

Until then, both institutions will continue to monitor inflation trends and global risks while emphasising stability as the cornerstone of South Africa’s economic recovery and long-term growth strategy.