South Africa's Kganyago Says Mid-Point Target Allows for Shocks

(Bloomberg) -- South Africa’s central bank is seeking to anchor inflation at the midpoint of its target range of 3 percent to 6 percent to allow flexibility to deal with price shocks, Reserve Bank Governor Lesetja Kganyago said.

While risks to global economic growth are “without a doubt” a dominant concern and the domestic inflation outlook is largely “contained,” it’s important to bring inflation expectations closer to 4.5 percent, he said in an interview with Bloomberg TV in Davos.

The Reserve Bank kept its benchmark rate at 6.75 percent last week after raising it by 25 basis points in November, the first increase in more than two years. It slashed forecasts for inflation on new assumptions for the oil price, but flagged risks from currency and commodity-price volatility.

“We would like to see inflation and inflation expectations moving closer to the mid-point of our inflation targeting range because that gives us the flexibility that we are actually looking for, that we should be flexible within the target rather than flexible outside of the target,” Kganyago said, adding it was the correct decision to raise rates last year.

Inflation slowed to 4.5 percent in December from an 18-month high in November, the Pretoria-based statistics agency said Wednesday. It matched the median estimate of 19 economists surveyed by Bloomberg.

To contact the reporters on this story: Jonathan Ferro in London at jferro10@bloomberg.net;Prinesha Naidoo in Johannesburg at pnaidoo7@bloomberg.net

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Gordon Bell

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