Finance minister Enoch Godongwana says co-operation between himself, Reserve Bank governor Lesetja Kganyago and their respective institutions remains intact and the new official inflation target came as a result of mutual agreements to fight inflation.
He was speaking at a Rand Merchant Bank (RMB) breakfast session after Wednesday’s tabling of the medium-term budget policy statement (MTBPS) in parliament on Wednesday.
The reduction of the official inflation target to 3% came after months of the minister saying that a tense standoff with Godongwana after Kganyago said in August that the Bank’s monetary policy committee (MPC) would anchor its approach to setting the repo rate against a 3% inflation target.
After Kganyago said this, the finance minister came out swinging. He said there was no intention to change the official inflation target in the MTBPS and that it was not the place of the Bank or the MPC to set monetary policy on its own.
At the breakfast, Godongwana said the Treasury and the central bank were in agreement about the importance of bringing inflation down and that a lower and tighter inflation target would help the government in this endeavour.
“Something we didn’t announce as part of this macroeconomic stability is the inflation target framework. And when the governor and the MPC made an announcement, and I kind of reacted, people said, ‘these guys are fighting’.
Yesterday virtually all members of the GNU were on the same page in supporting the budget. Not a single member took a different turn. What was interesting was also that some of those who are not part of the GNU, like ActionSA and ACDP, were also positive
— Finance minister Enoch Godongwana
“We are not fighting. Kganyago and I have known each other for 35 years. When I met him, he was 24 years [and] four months [old]. So he does believe that I’ve got a tendency of bullying him because of the age difference.”
He said the decision to adjust the official inflation target downwards to 3% was the outcome of joint activities by the Treasury and the Bank, including work under the Government Technical Advisory Centre.
“He had already had a general agreement between ourselves, because we have what we call the ‘macro’ standing committee of officials of the Treasury and the Bank. And when I presented the vote of the department, I made the point that lower inflation is good for the economy.”
The minister said the MTBPS placed the South African economy on a firm footing for growth as the debt-to-GDP ratio was set to peak at 77% and decline by 2028. He said the fiscus achieving its third budget surplus was also an encouraging sign that South Africa was on the mend.
The MTBPS was proposed and tabled on Wednesday without any outward resistance from member parties in the GNU — in stark contrast to the fracas from the three attempts to approve a budget earlier this year over contentious VAT hike proposals that parties in the GNU rejected.
“Yesterday virtually all members of the GNU were on the same page in supporting the budget. Not a single member took a different turn. What was interesting was also that some of those who are not part of the GNU, like ActionSA and ACDP, were also positive.”
The EFF slammed the adjusted inflation target as “misguided”, calling it a “surrender” to institutions such as JP Morgan and Goldman Sachs, who reportedly had a hand in changing the minister’s mind — although this is a claim the minister denies.
TimesLIVE
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