Fitch Ratings expects South Africa’s National Treasury to formally lower the nation’s inflation target to 3% next month, endorsing the central bank’s adoption of the goal in July.
The announcement is expected when Finance Minister Enoch Godongwana presents his Medium-Term Budget Policy Statement on 12 November, Thomas Garreau, director for Middle East and Africa sovereign ratings, said in a webinar on Tuesday.
“We do consider that the upcoming medium-term budget speech will formally announce” a 3% target, he said.
The Treasury is in a closed period before the presentation by Godongwana, who’s previously said he’ll make an announcement “as soon as is practical.”
Reserve Bank Governor Lesetja Kganyago announced in July that monetary policymakers now prefer to anchor inflation at the bottom end of their official 3%-to-6% target band that hasn’t been revised since the framework was introduced in 2000.
The lender previously targeted inflation at the 4.5% midpoint.
“Shifting to a single-point target that in our baseline scenario will be announced in the MTBPS doesn’t mean that it will strictly be implemented immediately,” Garreau said.
“We do consider that SARB will have some tolerance for inflation that will be slightly above this.”
Kganyago has repeatedly said that getting the backing of the Treasury is crucial to helping guide inflation to the 3% target.
A joint statement by the two authorities on the topic last month was a key driver of investor optimism toward South African assets, he said in an interview on 9 October.
Since Kganyago’s announcement in July, the yield on South African benchmark 10-year bond has fallen 90 basis points to 8.9% by 15h00 in Johannesburg on Tuesday.
The rand has strengthened more than 4.5% over that period to trade at 17.36 per dollar.
The central bank’s quarterly projection model sees inflation peaking at 4% this quarter, before easing to 3% by end-2027, indicating there’s room for 75 basis points of interest-rate cuts next year.
That’s in line with Fitch’s own forecasts.
“We do anticipate a minor increase by the end of the year, there is still some sticky inflation in food,” Garreau said.
“But we do consider that inflation will gradually decline to a level that would be close to 3% by the 2027 fiscal year.”
