Finance Minister sets new inflation target at 3% with a tolerance band

Finance Minister Enoch Godongwana has announced a new inflation target of 3%, with a one percentage point tolerance band.

Presenting the Medium Term Budget Policy Statement (MTBS), Godongwana stated that this revision was reached through discussions with South African Reserve Bank (SARB) Governor Lesetja Kganyago and consultations with President Cyril Ramaphosa and the Cabinet.

The new inflation target, down from between 3 and 6%, will be implemented over the next two years.

“Over time, the lower target will decrease inflation expectations and inflation, creating room for lower interest rates. This supports household spending and business investment, boosting economic growth and job creation,” Godongwana said.

Addressing journalists at a media lock-up briefing before Godongwana tabled his MTBPS, Kganyago said that he and the finance minister agreed on the new inflation target in line with South Africa’s peers.

“It is something that the Treasury and the Reserve Bank have studied for an extensive period,” he said, adding that every policy has its trade-off and that the benefits for the new target, outweigh the costs.

Tabling his budget statement in Parliament, Godongwana said citizens have a reason to be optimistic about the future.

“Two years ago, we committed to stabilising public debt in the current year and then beginning to reduce it. Despite a challenging environment of persistently low economic growth, we are on track to achieve this goal.”

Godongwana said South Africa’s most pressing challenge remained accelerating economic growth to create jobs and reduce poverty.

“Drawing lessons from the 2025 Budget process, we have engaged extensively to build consensus on how to achieve faster growth and leverage public finances to attract the investment needed to create jobs and improve life for all.”

He said unlike in the past, revenue will exceed the budget by R19.3 billion and debt-service costs will be lower by R4.8 billion.

The minister said consolidated spending will increase from R2.6 trillion this year to R2.9 trillion in 2028/29.

“The lion’s share of consolidated non-interest spending, approximately 61% over the next three years, continues to fund the basket of government–provided services and benefits that reduce the cost of living for our citizens,” he said.

DA finance shadow minister Mark Burke described the MTBPS as a major step in the right direction.

Burke said there was much to like about the budget statement, especially with a deficit that was smaller than predicted in May and debt to GDP that was stabilising this year and then predicted to come down.

EFF leader Julius Malema said the reduced inflation targeting was to increase borrowing and that there was no clean plan to deal with unemployment, policing and defence challenges.

“This is basically making sure they outsource that which the government is supposed to do. They are making sure that the private sector is in the right position to compete with services that should be provided for by the State,” he said.

The MK Party’s Brian Molefe said the MTBPS did not mention how the challenges of unemployment, equality and poverty would be dealt with.

He said while the 3% inflation target was welcome, he wished that the same vigour and determination was there to deal with unemployment.

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