SARB Governor Expects Inflation to Hit 3% Target by End of Next Year
- The South African Reserve Bank expects inflation to cool sharply and return to its 3% target by the end of next year, according to Governor Lesetja Kganyago.
- The central bank raised its benchmark interest rate by 25 basis points to 7.25% last week.
- The shift to the 3% target has provided tangible benefits for local financial assets.
The South African Reserve Bank expects inflation to cool sharply and return to its 3% target by the end of next year, according to Governor Lesetja Kganyago. Speaking on 28 September 2026 at the Mistra Forum in Johannesburg, Kganyago said tighter monetary policy would help rein in consumer price growth, which has remained above the central bank’s goal since March due to lingering supply constraints and elevated energy prices driven by ongoing conflicts in Ukraine and Iran.
Interest Rate Policy and Inflation Targets
The central bank raised its benchmark interest rate by 25 basis points to 7.25% last week. Governor Kganyago stated that the rate increase was a necessary measure to counter large and sustained geopolitical shocks that threaten to trigger second-round price pressures and entrench inflation. “We expect inflation to slow significantly next year, and we have increased our policy rate to make sure we get back to 3%,” Kganyago told the audience in Johannesburg, according to his prepared speech text. “We currently expect to get there around the end of next year.” The South African Reserve Bank adopted the 3% target last year, replacing the previous target range of 3% to 6% that had been maintained since 2000. Kganyago noted that missing the target for six months stands in sharp contrast to other major economies, pointing out that United States inflation had gone 67 months without hitting its target interval.
Bond Repricing and Currency Stability
The shift to the 3% target has provided tangible benefits for local financial assets. Kganyago highlighted that South African assets have been largely shielded from a broader global bond repricing that pushed United States long-dated yields to their highest levels since 2007 this year. Because the country’s risk premium has declined, domestic longer-term borrowing costs are avoiding the sharp upward trajectories seen in rich-country benchmarks.
Economic Growth Challenges and Structural Reforms
Despite the favorable outlook for inflation and currency stability, underlying economic growth remains weak. South Africa’s economy has expanded by an average of less than 1% per year over the past decade, and output contracted by 0.2% in the second quarter. Kganyago emphasized that this underlying weakness leaves the economy vulnerable to minor shocks that can easily push quarterly growth below zero. While the government has pursued a reform agenda with clear priorities, progress remains gradual amid persistent headwinds. Although certain operational areas have improved—notably the stabilization of electricity supplies after years of debilitating daily power cuts—international conflicts and rising operational costs continue to weigh heavily on commercial activity.
“The bad news offsets the good news,” Kganyago said. “If we are going to get back to growth, we will need more good news than bad.”
Lesetja Kganyago