South Africa’s central bank said it would lower its inflation target from 4.5% to 3%.
Reserve Bank Governor Lesetja Kganyago unveiled the policy shift on Thursday after announcing the bank’s decision to cut the benchmark rate by 25 basis points to 7%.
Supporters of a lower inflation target say the move will bolster confidence in the country’s economic stability, ultimately helping to reduce government and private sector borrowing costs by reducing the risk premium attached by investors. But the move has not been greenlit by the government. South African Finance Minister Enoch Godongwana, who has ultimate responsibility for the decision, has been more reluctant to alter the target.
Razia Khan, chief economist for Africa and Middle East at Standard Chartered, called the new target “a significant macroeconomic positive.” South African government bond yields dropped to their lowest in five years following the announcement, Reuters reported.