Fitch Ratings expects South Africa to unveil a revised 3% inflation target during November’s Medium-Term Budget Policy Statement (MTBPS), according to Thomas Garreau, Director for Middle East and Africa Sovereign Ratings at Fitch.
Speaking on Tuesday, Garreau said the change would align with recent discussions between the South African Reserve Bank and the National Treasury.
According to Reuters, Central Bank Governor Lesetja Kganyago earlier in October, confirmed that both institutions had agreed the inflation target should be lowered but had yet to decide when to implement it.
“It doesn’t mean that it will strictly be implemented immediately,” Garreau noted during a media briefing.
“We do consider that South Africa’s Reserve Bank will have some tolerance for inflation,” he added, suggesting that interest rates would not be raised immediately in response to the shift.
Kganyago had previously surprised markets in July when he announced that the central bank would effectively target 3% inflation, rather than adhering to the current 3–6% range set by Finance Minister Enoch Godongwana.
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Addressing South Africa’s credit rating, Garreau said higher GDP growth is not the sole determinant of improvement.
“But we must be confident that medium-term growth prospects will be higher and will become sufficiently strong to support fiscal consolidation and address some challenges … typically high inequality and unemployment,” he said.
Garreau added that confidence in stabilizing the government’s debt-to-GDP ratio would also positively influence the country’s rating.
Fitch maintained South Africa’s BB- rating with a stable outlook in September, forecasting economic growth of 1.2% between 2025 and 2027, well below the 3.7% median growth expected for similarly rated countries.
The agency attributed the sluggish outlook to persistent issues such as weak logistics, low investment, and structural unemployment.
South Africa lost its investment-grade rating from Fitch in 2017 and was downgraded to BB- in 2020, when the agency projected that general government debt would climb to 94.8% of GDP by the end of March 2023, up from 64.9% in the prior fiscal year.
Looking ahead, Fitch expects debt to rise slightly to 79.6% by the end of March 2027, above government estimates, which see debt peaking at 77.4% this year before easing.
Last week, Kganyago criticized rating agencies for past projections, arguing that borrowers should have the opportunity to challenge such assessments.
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Image Credit: CNBC Africa
