New target could prevent riots and social unrest in South Africa

The South African Reserve Bank (SARB) is pushing for a new inflation target, claiming that the current range makes the nation uncompetitive and causes price pressure on citizens.

SARB Governor Lesetja Kganyago recently announced that the Monetary Policy Committee (MPC) will base its interest rate decisions on a “preferred” 3% target. 

Although this is still within the target range of 3% to 6%, it is far lower than the “official” 4.5% midpoint target on which the SARB has been basing its interest rate decisions. 

The SARB does not set the target, with the Minister of Finance responsible for mandating the range.

The National Treasury and the SARB are working on finding a new target band, noting earlier this month that a formal announcement will be made as soon as practical to anchor expectations. 

South Africa’s inflation rate has been subdued over the last year, sitting around 3% since October 2024.  However, early signs suggest inflation is starting to creep higher, with the July 2025 print at 3.5%. 

While markets await an official announcement, Masondo has endorsed the lower inflation target.

Speaking at the RMB Morgan Stanley 2025 Investor Conference, Masondo noted that the current inflation-targeting framework is far too wide and should be narrowed over time. 

“The principle remains clear: low and stable inflation supports competitiveness, boosts demand, reduces borrowing costs, and strengthens employment creation,” said Masondo. 

On top of this, he added that prices can also lead to less social upheaval across the country. 

“Politically, it also helps to prevent the kind of social unrest that high inflation and high unemployment can trigger.”

Changes for South Africa 

Masondo also highlighted the efforts of the National Treasury to achieve fiscal sustainability. 

This includes expenditure control, with South Africa maintaining a primary budget surplus, where revenue exceeds non-interest spending, for three years. 

“This outcome is critical because it reduces the debt burden and lowers debt-service costs, which in turn lowers the sovereign risk premium,” he added. 

However, he noted that sustainable debt is still a cornerstone for fiscal sustainability. 

“It is not just about how much debt we carry, but whether that debt can be serviced, and more importantly, what the debt is used for.” 

“Debt that funds consumption weakens the economy; debt that funds infrastructure investment expands the economy’s capacity and unlocks growth.” 

South Africa’s debt-to-GDP ratio stood at 76.9% in the 2024/25 period, against a projected 74.7%. 

In the third budget for 2025, the National Treasury projected that the ratio would stabilise at 77.4% of GDP by the end of 2029/30. 

“When the Finance Minister delivers the MTBPS in November, he will provide an update on this trajectory,” said Masondo. 

“Importantly, given the delays in tabling and approving the Budget earlier this year, the Minister will also announce some adjustments to the budget process to reduce uncertainty.” 

The Deputy Minister said that uncertainty comes at a cost, as it delays investment commitments and raises the cost of capital, as debt and equity investors demand higher returns to manage heightened risks. 

Addressing South Africa’s high levels of unsustainable debt means achieving stronger economic growth, as South Africa’s growth has been weak for more than a decade. 

Masondo admitted that GDP per capita has declined, unemployment has risen, and macroeconomic fundamentals have deteriorated over the last 10 years. 

National Treasury predicted 1.4% for the year, but higher levels of growth are needed to increase tax revenues, as well as create jobs, household income and profits for companies. 

“Stronger corporate earnings enhance investment attractiveness, reduce sovereign risk premiums, lower the cost of equity, and ultimately strengthen our stock market performance,” said Masondo. 

Issued on BusinessTech by Luke Fraser | https://businesstech.co.za/news/government/837592/new-target-could-prevent-riots-and-social-unrest-in-south-africa/