South Africa\u2019s central bank credited its new 3% inflation target for already helping guide expectations lower across the economy, after the formal adoption of the goal last month.<\/p>\n
Inflation expectations two years ahead, which policymakers use to guide their decisions on interest rates, fell to a record low of 3.7% in the fourth quarter from 4.2%, data released on Friday showed.<\/p>\n
Read: SA business mood soars to 14-year high<\/p>\n
\u201cEncouragingly, surveyed inflation expectations came down further in the fourth quarter of 2025, likely in response to the lowering of South Africa\u2019s inflation target to 3%,\u201d the South African Reserve Bank said in its December Quarterly Bulletin published on Monday. \u201cOn average, the inflation expectations of all surveyed groups fell below 4% across the entire forecast horizon.\u201d<\/p>\n
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Finance Minister Enoch Godongwana last month officially endorsed a lower 3% inflation target in an update to the nation\u2019s budget. His announcement followed a long campaign advocating for such a move by the central bank, which in July had announced its preference to aim for that level. Before that, policymakers targeted the midpoint of a 3% to 6% band. It was the first time that the inflation target had been changed in a quarter century.<\/p>\n
Yields on South Africa\u2019s 10-year government benchmark bond have declined by about 140 basis points to around 8.4% since the Sarb\u2019s shift at the end of July.<\/p>\n
Read: Read: Inflation expectations fall toward 3% target<\/p>\n
The bank reiterated that the new target will help anchor inflation expectations at a lower level over the medium term, and widen room for the prospect of permanently lower interest rates.<\/p>\n
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\u201cThis should encourage fixed investment and support stronger long-term economic growth,\u201d the bank wrote in the Quarterly Bulletin.<\/p>\n
Read: From grey list to growth: How SA is shaping up for 2026<\/p>\n
The decline in inflation expectations may encourage policymakers to cut interest rates again when they hold their next meeting in late January, after reducing the benchmark repurchase rate by 25 basis points to 6.75% last month. Cumulatively, the Sarb reduced interest rates by 100 basis points this year.<\/p>\n
\u00a9 2025 Bloomberg<\/p>\n
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