Governor of the South African Reserve Bank, Lesetja Kganyago, has signalled a cautious approach to monetary policy, emphasising that future decisions on interest rates will be guided by incoming data and inflation projections.
Speaking in an interview with ARISE News on Thursday in Davos, Kganyago said December’s inflation reading of 3.6% was in line with expectations, but stressed that past numbers do not dictate future policy.
“The inflation figure that came out is in line with the expectations of the Reserve Bank and, interestingly, with that of the market. Inflation averaged 3.2% in 2025. But that is the past. The past does not determine what future policy should look like. What is important is the outlook,” Kganyago said.
“The outlook for inflation over the next 12 months is that we will continue to have inflation within a handle of 3%, and we expect the average for inflation this year to be around 3.5%. We will continue to assess incoming data.”
Kganyago highlighted that a policy meeting scheduled for next week will provide clarity on the Bank’s next moves, including any potential interest rate adjustments.
“We have got a policy meeting coming next week, so you will know for sure on Thursday exactly what we would do,” he said.
On the prospects for rate cuts, the Governor referred to the Bank’s November quarterly projection model, which suggested two 25-basis-point cuts over the next 12 to 18 months.
“This is just a policy guide that changes from meeting to meeting and depending on incoming data and the outlook. It is by no means a definitive path of where monetary policy is going,” Kganyago explained.
Kganyago also discussed the Bank’s decision to revise South Africa’s inflation target, narrowing it from a 3–6% range to a 3% midpoint with a 1% tolerance band.
“South Africa introduced an inflation target 25 years ago. It will be the 26th this year. Our inflation target band had been high and too wide, out of line with that of peers. We have been doing work for the past 24 to 36 months and came to the conclusion that the correct target to aim for is 3%,” he said.
“We believe that 3% will be consistent with the price stability mandate. Secondly, we believe that it will enhance South Africa’s competitiveness. Thirdly, we believe that it will transform the South African economy into a low-inflation economy.”
Kganyago cited early signs that the policy shift was bearing fruit.
“Government bond yields are down 200 basis points across the yield curve. Inflation expectations are at their lowest since the survey started in 2011. And we can actually see that it was a correct call to lower the inflation target.”
Asked about the potential impact of international developments, including US policy statements, Kganyago said global geopolitical tensions inevitably influence South Africa’s economic outlook.
“Of course, it will impact South Africa. It’s a matter of course. Governors don’t respond to what presidents say; we take what they have said and ask how it will impact the way in which we analyse the economy,” he said.
He cited previous scenarios in which U.S. trade policy created uncertainty for South African exports:
“In January last year, we ran a scenario as the South African Reserve Bank: what if the US cancels AGOA and imposes a 25% tariff on South African exports? We were out by five percentage points because yes, they removed AGOA and imposed tariffs of 30%.
“Over time, they exempted certain minerals and agricultural products that they were actually looking for. That generates a lot of uncertainty, and if you look at the global uncertainty indices — trade, geopolitics, and economic uncertainty — they are all on the up,”he said.
Boluwatife Enome
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