South African Reserve Bank inflation targeting — what Kganyago's regime delivered

<p>Lesetja Kganyago, governor of the South African Reserve Bank from November 2014 through his second term ending in 2024 (with the third term commencing under expected continuity), has run one of the more disciplined inflation-targeting regimes in any emerging market central bank. The SARB&#x27;s 3-6% CPI target band, established in 2000, has been defended through three currency crises, two political-uncertainty episodes (Nenegate 2015, the Zuma succession), and the pandemic. The empirical record is worth taking seriously.</p> <p>South African CPI averaged 5.0% over the 2015-2024 decade, well within the target band though closer to the upper bound than the lower. The rand&#x27;s volatility — JSE one of the more volatile EM currencies — has not translated into proportional inflation pass-through, which is the credibility test for an inflation-targeting regime in an open economy. The monetary policy committee&#x27;s communication discipline, including detailed quarterly Monetary Policy Reviews, has built the institutional credibility that lets the SARB hold rates higher than political pressure would prefer.</p> <p>The post-2020 cycle illustrates this. The SARB cut the repo rate aggressively during the pandemic — from 6.5% to 3.5% by July 2020 — then raised it from late 2021 through 2023 to a peak of 8.25%, with restrictive policy held through 2024 despite government and ANC-aligned criticism. Treasury and Reserve Bank communication occasionally diverged during this period; the SARB&#x27;s institutional independence under the Constitution (Section 224) is the legal basis that prevented the divergence from becoming a coordination crisis.</p> <p>The structural tension is between inflation targeting and unemployment. South Africa&#x27;s expanded unemployment rate sits around 42%, structurally elevated. Critics — Mzwanele Manyi most vocally, Patrick Bond from the academic left, and some elements of the ANC Economic Transformation Committee — have argued that the SARB&#x27;s inflation focus prioritises wealth preservation over employment creation. The SARB&#x27;s response, articulated repeatedly by Kganyago, is that price stability is the precondition for the long-term investment decisions that produce jobs, and that monetary policy is the wrong instrument for addressing structural unemployment.</p> <p>The 2025 lower-target debate — Treasury and SARB discussing a possible move from the current 4.5% midpoint to a 3% point target, aligning with developed-market practice — is the next inflection. A move to 3% would tighten policy mechanically; the political cost in an economy with 42% unemployment is non-trivial. Whether Kganyago&#x27;s successor (or extended tenure) makes that move, and how the GNU government coalition manages the fiscal-monetary coordination around it, will define the next decade of South African macroeconomic policy. The institutional credibility is there. The political headroom is thinner than it was a decade ago.</p>