South Africa’s finance minister Enoch Godongwana has a message for anyone hoping for decisive economic reform: calm down.
While the South African Reserve Bank (SARB) has made it abundantly clear that it wants a lower inflation target – and has been screaming it into the void for years – Godongwana is urging everyone to take a deep breath and maybe a sabbatical before making any sudden moves.
Speaking in parliament on Tuesday, Godongwana confirmed that, yes, work is indeed “progressing well” on the possibility of revising the inflation target. But don’t get too excited, because this isn’t something that will be rushed just because the SARB got a little giddy with their spreadsheets.
“Such decisions should not be taken in haste,” Godongwana declared, wrapping his cautious optimism in a cocoon of bureaucratic caveats. He added that proper “technical and political engagements” are needed to form a “genuine consensus grounded in a thorough consideration of the social and economic realities.” Translation: don’t hold your breath.
Currently, the inflation target sits between 3% and 6%, which is the monetary equivalent of playing darts with oven mitts. The SARB has been quietly, and sometimes not-so-quietly, advocating for a tighter 3% goal – you know, something resembling actual inflation control.
Back in May, the central bank even modeled a 3% target during its policy announcement, saying it found the number “more attractive” than the fuzzy midpoint of the current range. How romantic.
It seems like markets are ready to swipe right. Mere whispers of a lower target in the works were enough to send investor confidence and bond prices rising, as if economic seriousness might actually be on the menu for once.
But not so fast. In South Africa, policy moves at the speed of molasses in winter. Especially when said policies require cooperation between independent institutions and politicians with differing agendas.
Godongwana, for his part, appears less thrilled than SARB Governor Lesetja Kganyago about diving into the unknown waters of inflation targeting reform. While Kganyago has practically made a side hustle out of championing a stricter inflation regime, the finance minister is taking the “let’s workshop it” approach.
To be fair, inflation is already below the current target, clocking in at a modest 2.8% in May. But that’s no reason to get complacent, considering South Africa’s track record of being one bad fiscal decision away from economic chaos.
Analysts say tightening the inflation target could increase policy credibility and tame inflation expectations in the long term, giving the SARB a clearer mandate. “A lower, well-communicated inflation target is helpful if paired with disciplined fiscal policy,” said Annabel Bishop, chief economist at Investec, in a recent research note.
Unfortunately, disciplined fiscal policy is as rare in South Africa as a pothole-free road.
The SARB’s next monetary policy meeting is set for July 31, and while markets are hoping for more than just PowerPoint slides, the real decision on the target still lies with the finance minister. Which means, for now, we’re all just watching a very polite game of economic hot potato.
In the meantime, investors can rest easy knowing that the country’s approach to inflation reform remains as carefully delayed and diplomatically overconsulted as ever. Because if there’s one thing South Africa excels at, it’s mastering the art of appearing busy while moving absolutely nowhere.
