Reserve Bank Governor Lesetja Kganyago has emphasized that South Africa has a unique opportunity to achieve permanently lower inflation and interest rates. Speaking at the University of Stellenbosch on Thursday, Kganyago reflected on the central bank's efforts to reduce inflation to 4.5 percent and discussed the associated costs.
Since 2017, the Reserve Bank has aimed for the middle of its inflation target range, and Kganyago pointed out that this experience has provided valuable lessons that remain relevant today. He addressed the complexities surrounding administered prices and their impact on inflation.
"While it is true that administered price inflation is excessively high and detrimental to the economy, a reduction in these prices could indeed contribute to lower overall inflation and interest rates," Kganyago stated. "However, it is crucial to recognize that administered prices are also influenced by broader economy-wide inflation. They do not constitute such a significant portion of the overall basket that achieving disinflation would require forcing deflation on other sectors."
Kganyago's comments underline the intricate relationship between monetary policy, inflation, and the various structural factors affecting the South African economy.