JOHANNESBURG - Reserve Bank Governor Lesetja Kganyago has thrown South Africans another lifeline.
Following the latest Monetary Policy Committee meeting, he announced an interest rate cut of 25 basis points, bringing the repo rate to 6.75 percent.
eNCA sat down with Kganyago for a wide-ranging interview, including how the committee came to the decision.
Kganyago says the journey stretches back to 2001, when South Africa experienced a severe exchange rate shock.
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That moment, he explains, prompted a reassessment of the country’s inflation targeting band, after government announced plans to lower the target range from 3% to 6% to 3%–5%.
“We said at some appropriate time we would lower the target. Since then, many countries that adopted inflation targeting had lowered their target rates. But the people who initially said the target would be lowered at an appropriate time left their positions and nobody bothered to ask whether the time was now appropriate.”
He said it wasn’t until 2021 that National Treasury commissioned a macroeconomic review, which included a detailed review of monetary policy.
That review, according to Kganyago, concluded that South Africa’s inflation target was too high and needed to be lowered to around 2 percent to 3 percent.
“We had done the work and came to the conclusion that 3 percent is where we should be. In the process, we had to figure out if we bring inflation down to 3 percent, what would it cost us?
"At the time, we were targeting 4.5 percent, and we asked what lowering it would mean for lost output. We had to quantify the impact on the fiscus as well. Eventually, we concluded that, on balance, we benefit from low inflation.”
Kganyago says the real winners of the shift are ordinary South Africans.