In what was a widely anticipated move, Finance Minister Enoch Godongwana announced the reduction of the inflation target to 3%, with a tolerance band of 1 percentage point, at the reading of the Medium Term Budget Policy Statement (MTBPS) today.

"This is the first time in a quarter of a century that the government has changed the target. The new target will anchor inflation at permanently lower levels. This will reduce the cost of living and borrowing costs for households, businesses and the government, supporting higher long-term economic growth and job creation," Godongwana said in a foreword to the Medium Term Budget Policy Statement (MTBPS) 2025 on Wednesday, 12 November.

In June this year, Reserve Bank Governor Lesetja Kganyago reiterated his argument for a lower inflation target, saying that the current rate undermined the value of the rand and contributed to persistent price increases. The SA Reserve Bank, along with the National Treasury, carried out a technical review of the inflation targeting framework and submitted recommendations to Kganyago and Finance Minister Enoch Godongwana.

"Although an inflation rate of 4.5% may seem moderate, it still causes prices to double every 16 years," Kganyago noted in the SARB's annual report. "This...