South Africa has adopted a new inflation target of 3%, with a 1 percentage point tolerance band, replacing the previous range of 3% to 6%.
Finance Minister Enoch Godongwana announced the decision on Wednesday, during the delivery of the Medium Term Budget Policy Statement, following agreement with the Governor of the South African Reserve Bank (SARB), Lesetja Kganyago and consultations with the President and Cabinet.
The new framework, which will be phased in over the next two years, aligns South Africa with international best practice and aims to better anchor inflation expectations, strengthen price stability, and support long-term growth.
“This revision marks an important step in modernising our macroeconomic policy framework and ensuring stability that benefits all South Africans,” the Minister said.
The tighter target band provides flexibility to accommodate unexpected inflationary shocks while maintaining the country’s tradition of “flexible inflation targeting”, which focuses on long-term stability rather than short-term price swings.
According to the joint statement from the Ministry of Finance and the SARB, the decision follows a comprehensive review by both institutions, conducted individually and through the Macroeconomic Standing Committee.
The review concluded that a lower target would enhance price stability and bring South Africa closer to the standards of major emerging and advanced economies.
While National Treasury acknowledged the short-term fiscal costs of a lower target, such as slower nominal GDP and revenue growth, which may make fiscal consolidation more challenging. But it said the long-term benefits far outweigh the costs.
“A lower inflation target will, over time, reduce inflation expectations and actual inflation,” the statement said. “This will create space for lower interest rates, supporting household spending, business investment, and ultimately, job creation.”
The SARB will pursue the new target on a continuous basis and commit to clear communication around any temporary deviations.
National Treasury and the SARB reaffirmed their commitment to policy coordination as South Africa navigates global economic uncertainty and domestic structural challenges.
