The Organisation for Economic Co-operation and Development (OECD) has expressed its support for the South African Reserve Bank’s (SARB) initiative to lower the country’s inflation target, stating that such a move would boost economic growth and international competitiveness.
“Lowering the inflation target and considering narrowing the band around it” was one of the main recommendations of the OECD’s 2025 economic survey of Africa’s most industrialized economy, released this Thursday (5 June) in Johannesburg.
The study comes at a time when SARB and the National Treasury are concluding a lengthy review of the 3% to 6% inflation target, which has remained unchanged since it was introduced in 2000. It highlights that “formalizing the focus on keeping inflation near a 3% midpoint could better support economic growth.” The central bank has recently stepped up its public advocacy for lowering the target, viewing the current moment — with inflation at 2.8% — as an “incredible” opportunity for change. Achieving a 3% target is expected to lead to lower long-term interest rates and save billions of dollars in debt servicing over a decade.
Credit rating agency S&P Global Ratings separately stated that lowering the target would be “good” for the economy.
However, SARB emphasized that it will not act without the support of Finance Minister Enoch Godongwana, implicitly acknowledging the political costs of such a move. Strong opposition is likely from those who argue that a lower target would mean higher borrowing costs, slower growth, and fewer jobs in a country where unemployment exceeds 30%.
The minister said on Wednesday (4 June) that he had not yet formed an opinion on the matter because the review had not yet delivered its recommendations: “Once we receive the report, we will form an opinion and issue the appropriate statement.” Last year, Godongwana said that lowering the target was at the bottom of his priority list — a position noted by private-sector economists, especially given the government’s plans to heavily invest in modernizing the country’s infrastructure, which could clash with a lower target by stimulating inflation.
Even so, the Paris-based OECD believes South Africa’s inflation target is relatively high and broad. Its main trading and emerging market peers, including Brazil, China, and India, have lower targets, averaging around 3%.
“Given the current low inflation and forecasts for the coming quarters, this seems like an appropriate time to make the change,” the OECD official added, emphasizing that SARB’s credibility would help keep inflation expectations well anchored.
Godongwana also noted that South Africa has yet to act on a series of recommendations from previous OECD reports, including reducing public debt growth, cutting corporate taxes, increasing revenue, and privatizing state-owned enterprises.
Source: Bloomberg
