Is it time for the SARB to broaden its mandate beyond inflation targeting?

The South African Reserve Bank (SARB) has been lauded for its credibility and commitment to inflation targeting over the past century. As the SARB celebrates its centenary, the focus shifts to the future of monetary policy in South Africa. In a recent interview with CNBC Africa, Intellidex Head of Research Peter Attard Montalto discussed the potential need to re-evaluate the country's inflation targeting regime. With the current inflation target of three to six percent significantly higher than global trends, Montalto suggests a gradual shift towards a lower target of 2.5% to 3% to align with international standards. The debate around inflation targeting has gained momentum as the SARB aims to maintain credibility while adapting to economic developments. Lower inflation expectations and moderate costs associated with a lower inflation target provide a conducive environment for potential changes. However, political considerations loom large in the decision-making process, with conflicting views within the African National Congress (ANC) posing challenges to policy reforms. Montalto emphasizes that structural reforms and enhanced productivity are crucial factors in achieving long-term economic convergence with trading partners. With a potential timeline of adjustments by 2023 or 2024, post-national elections, the SARB is keen on initiating public discourse and paving the way for a smooth transition. Regarding current monetary policy implications, Montalto acknowledges market uncertainty surrounding potential policy shifts. While a lower inflation target could influence future monetary policy decisions, he clarifies that immediate effects on interest rates are unlikely. As South Africa navigates the challenges posed by the COVID-19 pandemic, a cautious approach to policy adjustments is warranted to ensure stability and economic resilience. As stakeholders debate the merits of shifting inflation targeting, the SARB stands at a critical juncture in its centennial journey. Balancing credibility, economic convergence, and political dynamics will be essential in shaping the future direction of monetary policy in South Africa.