Kganyago: Anchoring inflation at 4.5% will allow flexibility to deal with shocks

The SA Reserve Bank is seeking to anchor inflation at the midpoint of its target range of 3% to 6% to allow flexibility to deal with price shocks, 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%, he said in an interview with Bloomberg TV in Davos.

The Reserve Bank kept its benchmark rate at 6.75% 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 probably decelerated to 4.5% in December from an 18-month high in November, according to Bloomberg survey of 19 economists. The Pretoria-based statistics agency will release the data Wednesday.

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