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African central banks to put brakes on hiking to prop recovery

May 18, 2022
African central banks to put brakes on hiking to prop recovery

Central banks in five of eight major African nations will likely hold interest rates in the next two weeks to shore up their sickly economies, even as inflation pressures build.

Surging food and fuel prices from the war in Ukraine, renewed virus lockdowns in China and the US unwinding coronavirus stimulus have clouded the outlook for the continent’s post-Covid recovery. African policy makers will also need to consider portfolio outflows and exchange-rate weakness in emerging markets when they deliberate on interest-rate decisions this month.

Here’s what central bankers in Africa may do:

Egypt, May 19

  • Deposit rate: 9.25%
  • Inflation rate: 13.1% (April)
  • Inflation target: 7% +/- 2 ppt

After Egypt hiked its key interest rate for the first time in five years in March, more may be on the cards as the North African nation faces a spike in consumer prices and a hawkish US Federal Reserve affects capital flows.

Annual inflation hit its highest level in almost three years in April as food costs soared by about a quarter. That meant both Egypt’s policy rates turned negative, when adjusted for prices, for the first time since 2018, undercutting a high differential that had made the country a favorite for overseas portfolio investors.

South Africa, May 19

  • Repurchase rate: 4.25%
  • Inflation rate: 5.9% (March)
  • Inflation target: 3%-6%

South Africa’s central bank will raise its benchmark interest rate this week. The only question is “by how much?”

While the South African Reserve Bank lifted the key rate by 25 basis points in each of its last three meetings, two out of five MPC members voted for a bigger, half-point hike in March. Now, more of the panelists may agree to up the pace of tightening due to inflation that’s set to temporarily breach the ceiling of Reserve Bank’s target, a weaker currency, and a more hawkish US Federal Reserve and European Central Bank.

Ghana, May 23

  • Policy rate: 17%
  • Inflation rate: 23.6% (April)
  • Inflation target: 8% +/- 2 ppts

Ghana’s monetary authority will face a tough choice: support economic growth or tame runaway inflation. The decision even has economists split.

Absa Group Ltd analysts Ridle Markus and Samantha Singh expect the central bank to raise the benchmark interest rate by 200 basis points as they forecast inflation to exceed the MPC’s estimates after accelerating at a faster than anticipated pace in March and April.

Nigeria, May 24

  • Policy rate: 11.5%
  • Inflation rate: 15.9% (March)
  • Inflation target: 6%-9%

The Central Bank of Nigeria’s reconstituted MPC will probably stick to its policy of only making adjustments to borrowing costs once the economy’s recovery is on a sustainable path. That should see it leave the benchmark interest rate steady for a 10th consecutive meeting, even as inflation has been ticking up this year.

Mozambique, May 25

  • MIMO interbank rate: 15.25%
  • Inflation rate: 7.9% (April)

Rate setters in Mozambique will probably keep the benchmark unchanged to assess the impact a two percentage point hike in March and the IMF’s approval of a $456 million bailout deal this month will have on inflation that accelerated to a 54-month high of 7.9% in April

Kenya, May 30

  • Central bank rate: 7%
  • Inflation rate: 6.5% (April)
  • Inflation target: 5% +/- 2.5 ppt

Kenya’s MPC is expected to look past inflation that has edged closer to the top of its target range and the shilling’s weakness and keep its rate unchanged for a record 14th straight meeting to support lending ahead of elections on Aug. 9.

Angola, May 31

  • BNA rate: 20%
  • Inflation rate: 25.8% (April)

Angola’s monetary authority is likely to keep borrowing costs steady as a rally in the kwanza against the dollar is helping to rein in inflation. Governor Jose de Lima Massano said this month he expects inflation, which reached a peak in January, to slow further.-moneyweb

 

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Last modified on Wednesday, 18 May 2022 15:40
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