Enoch Godongwana Lowers South Africa’s Inflation Target To 3% In Bold Economic Move

Finance Minister Enoch Godongwana has announced a major policy shift, reducing South Africa’s inflation target to 3%, with a one percentage point tolerance band.

He made the announcement while delivering the Medium-Term Budget Policy Statement (MTBPS) in Parliament on Wednesday afternoon.

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The decision marks the end of a long-standing debate between the National Treasury and the South African Reserve Bank (SARB) over whether the inflation target—previously set between 3% and 6%—should be lowered.

Godongwana said the move would ultimately benefit ordinary South Africans struggling with rising living costs.

Government Moves to Align with Global Inflation Standards

Godongwana explained that expert advice dating back three years had urged the government to review its inflation framework. South Africa’s average inflation rate has consistently outpaced that of its key trading partners and other emerging markets.

While the new 3% target could temporarily slow GDP and revenue growth, Godongwana insisted that the long-term gains would justify the adjustment.

“Over time, the lower target will decrease inflation expectations and inflation, creating room for lower interest rates. This supports household spending and business investment, boosting economic growth and job creation,” he said.

Short-Term Pain, Long-Term Gain for the Economy

The minister noted that the change would bring South Africa in line with international best practices, potentially lowering borrowing costs and increasing investor confidence.

However, he acknowledged that the fiscal transition would not be easy: “The short-term fiscal costs of a lower target, which include lower nominal GDP and revenue growth, will make achieving fiscal targets more challenging.”

The Reserve Bank is now expected to steer inflation towards the 3% target over the next two years—a move that could redefine the country’s monetary policy landscape.

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