Kganyago expects inflation near 3% by end-2027 but warns of weak growth

South African Reserve Bank Governor Lesetja Kganyago said on Monday, 28 September, that the Bank expects inflation to return to about 3% around the end of 2027, while South Africa’s weak growth remains a concern.

In an address to the Mapungubwe Institute for Strategic Reflection’s forum on Africa and geopolitics, Kganyago said the Bank had increased its policy rate to prevent the current energy-driven price shock from becoming persistent inflation. He said inflation was expected to slow significantly next year.

The speech was an assessment of the economic outlook, not a new Monetary Policy Committee rate decision. Kganyago said local inflation had been at target when the energy shock hit, but had since spent about six months above it.

He described a difficult trade-off for policymakers when supply disruptions lift prices and hold back growth at the same time. The Bank’s approach, he said, was to look ahead and keep policy restrictive enough to limit longer-lasting inflation.

Kganyago also said South Africa’s public-debt outlook appeared to be improving. He put interest costs at about 5.3% of gross domestic product and said there was increasing confidence that the debt-to-GDP ratio had already peaked. He argued that high debt did not remove the need for an independent central bank.

Despite more favourable macroeconomic conditions, he said growth remained the country’s weak point. South Africa’s economy had grown by an average of about 0.6% a year over the past decade, according to the governor. He estimated potential growth at roughly twice that pace, which he still regarded as low.

Kganyago said longer-term South African bond yields had been contained at around 9% this year and the rand had shown relatively low volatility. He contrasted those developments with the country’s second-quarter contraction and the continuing drag from higher costs, including electricity prices that he said were double their 2020 level.

The governor’s remarks came in a wider speech on climate, geopolitical, technology and debt risks to the world economy. The inflation and growth forecasts are the Bank’s current expectations, not guarantees.