South African Reserve Bank (SARB) Governor Lesetja Kganyago has recently raised the prospect of lowering the inflation target and, in this Update, we answer five key questions on what it would mean. In the near-term, the adoption of a lower target would prompt us to pencil in more interest rate hikes. But given the extent of South Africa’s public debt problem, we’re not convinced that any new target would be met over a longer horizon. If anything, the risk in the medium term is of higher inflation.
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