Africa-Press – South-Africa. South African Reserve Bank Governor Lesetja Kganyago reinforced the benefits of a lower inflation goal, saying it could save the government as much as R900 billion ($52 billion) over a decade in debt-service costs.
“What we are showing by lowering the inflation target is that government will be able to save in debt servicing costs,” Kganyago told an audience at the release of the bank’s semi-annual Monetary Policy Review on Thursday in the capital, Pretoria.
“Over a 10 year period, we estimate that to be about R900 billion. To take a straight line over 10 years, it’s about R90 billion a year.”
South Africa currently spends 22 cents of every rand on debt-service costs, crowding out investment in health and education.
The South African Reserve Bank in July announced that its monetary policy decisions will now be guided by the floor of its 3%-to-6% inflation target instead of its previous objective of the midpoint of that range.
Investors have warmed to the idea. Since Kganyago’s announcement in July, the yield on South African benchmark 10-year bond has fallen 90 basis points to 8.9% and the rand has strengthened nearly 4% against the dollar and
The South African Reserve Bank has argued that the current inflation target, which has not been reviewed since it was first adopted in 2000, is too high and wide, and that aiming at 3% would help lower borrowing costs and make it competitive among its trading partners.
A new inflation targeting framework is yet to be formally ratified by Finance Minister Enoch Godongwana, who is due to deliver an update on the nation’s budget on 12 November.
For More News And Analysis About South-Africa Follow Africa-Press
