Kganyago warns SARB inflation target slip now seen to 2028

South Africa’s central bank now expects consumer prices to return to its 3% target only in 2028, Governor Lesetja Kganyago warned, as global energy and food prices continue to push upside risks onto the outlook. The extended timeline keeps questions of monetary policy discipline and mandate compliance at the centre of the debate.

Speaking to Reuters on the sidelines of the International Monetary Fund and World Bank annual meetings in Bangkok, Kganyago set out the trajectory the South African Reserve Bank is working from. Inflation is expected to average 4.4% this year, easing to within the central bank’s tolerance band in 2027 before reaching the target in 2028. Those projections, he indicated, point to a need for policy to remain tight.

The bank has already acted. Last month it raised its key rate by 25 basis points to 7.25% to combat inflation, and the governor’s remarks suggest further restraint may be required. The September increase was a unanimous decision by the policy committee, following a pause in July. The next monetary policy decision is due in November.

Kganyago declined to be drawn on whether further hikes would follow. He would say only that the current rate was “moderately restrictive” and that future decisions would be taken “meeting by meeting”, a formulation that keeps the committee’s discretion intact while signalling that no option has been ruled out.

The risks he identified are largely external, but each one lands on the mandate the bank is charged with defending. “The risks to the outlook, of course, they have to do with the geopolitical uncertainty, which feeds into the oil price, what’s happening with fertiliser prices and what that could mean for the food outlook, there’s the risk of El Niño and there is risk to the grain supply chain through the Black Sea,” he said. Underlying price measures, he added, point to an upturn in inflation, and “that is a concern.”

The most recent official data bears out the pressure. Headline inflation picked up slightly to an annual 4.4% in August, driven mainly by the housing and utilities, transport, and insurance and financial services categories.

One factor has worked in the bank’s favour. Kganyago noted that a steady exchange rate had offset some inflationary pressures, with the rand little changed so far this year despite a stronger dollar. “In the past, when you had the oil price rise, we would have had a depreciation of the currency as well. It has been fairly stable (this year), but still that is no case for us to be complacent,” he said. He credited fiscal consolidation and an appropriate monetary policy stance as factors underpinning the currency’s resilience, linking the bank’s own policy discipline to the broader stability that supports its inflation mandate.

For an institution charged with anchoring price expectations, the message from Bangkok was one of guarded vigilance. The forecast path back to 3% by 2028 depends on external risks not materialising, and the committee has made clear it will judge conditions at each meeting rather than commit to a preset course. With the November decision approaching, the bank’s willingness to keep policy restrictive, and the unanimity of its recent moves, will be the measures by which its handling of the mandate is judged.