Key African economies to hold off from rate cuts until second half of 2024

19th January 2024

By: Bloomberg


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African central banks due to decide on interest rates in the next three weeks are poised to maintain tight monetary policies, in contrast to their emerging market peers in Europe and Latin America, who have started cutting.

Its biggest economies Egypt, Nigeria, South Africa, Kenya and Angola are set to keep rates higher for longer until at least the second half of this year, as they battle persistent inflation and weigh up risks from weaker currencies and geopolitical tensions in the Middle East. An escalation in tensions in the oil-rich region could cause gasoline prices to surge.

Freight costs are already spiking due to ships rerouting around Africa because of attacks by Houthi militants on vessels in the Bab El-Mandeb strait, part of the passage from the Indian Ocean to the Suez Canal. In normal times, the route accounts for more than a 10th of maritime global trade.

Smaller economies such as Ghana and Mozambique may loosen their monetary policy in the first half of 2024 as they have some of the highest real rates in the world when adjusted for inflation.

What Bloomberg Economics Say

“Persistent inflation and soft currencies will keep rates on hold at the first MPC meetings of the year. Inflation remains in double digits for half of the sub-Saharan Africa countries holding meetings in the coming weeks, and currency weakness will keep those with single-digit rates from easing," Yvonne Mhango, Africa economist.

Angola, January 19

* BNA rate: 18%
* Inflation rate: 20% (December)

While the Banco Nacional de Angola has been reluctant to increase interest rates due to weakness in the domestic economy, analysts expect its monetary policy committee to maintain or raise them again, after a percentage-point hike in November.

Finance Minister Vera Daves de Sousa in an interview with Bloomberg TV this week said the central bank is “totally committed” to taming inflation that’s at a 17-month high and is forecast to continue to quicken because of exchange-rate pressures.

South Africa, January 25

* Repurchase rate: 8.25%
* Inflation rate: 5.5% (November)
* Inflation target: 3%-6%

South Africa’s monetary authority is poised to leave its key interest rate, which has been at its current level since May, unchanged for a while longer.

Inflation expectations, a key metric watched by policymakers to decide on rates, are on the rise again and Governor Lesetja Kganyago told Bloomberg TV this week that while price growth is within the MPC’s target “it is not quite where we would like to see it.” He added that policymakers would only cut rates when they “see that inflation has declined to our anchor, which is 4.5%.”

Oxford Economics Africa senior economist, Jee-A van der Linde anticipates rate cuts to start only once the US Federal Reserve enters easing territory. Markets are fully pricing in its first rate cut in May.

Ghana, January 29

* Policy rate: 30%
* Inflation rate: 23.2% (December)
* Inflation target: 8% +/- 2 ppts

Ghana’s MPC is set to stall its first rate cut since 2021 until later in the first half of 2024 to assess the impact of new taxes on annual inflation that’s near a two-year low.

“I would have expected a reduced policy rate but for the fact that we are having new taxes on electricity consumption and emissions, this will eventually fuel inflation,” said Agyapomaa Gyeke-Dako, a senior lecturer in economics at the University of Ghana Business School, who instead sees the monetary policy committee acting against that by keeping rates on hold.

Mozambique, January 31

* MIMO interbank rate: 17.25%
* Inflation rate: 5.3% (December)

Mozambique is also expected to delay loosening. That’s despite an International Monetary Fund assessment that it has “ample scope” to ease monetary policy because its real, inflation-adjusted interest rate is one of the highest in the region, constraining non-extractive economic growth.

The central bank has been reluctant to hastily reverse a tightening cycle that began in 2021 and will probably hold rates “until it firmly believes the inflation trajectory has changed,” according to Alfredo Mondlane, economist at FNB Moçambique. He sees 100 basis points in cuts over the rest of the year.

Egypt, February 1

* Deposit rate: 19.25%
* Inflation rate: 33.7% (December)
* Inflation target: 7% +/- 2 ppt

Egypt will likely save its next bout of monetary tightening until it enacts another much-anticipated currency devaluation, a step that would help the North African nation increase its current $3-billion International Monetary Fund’s loan and pass delayed reviews of the rescue programme.

“With no sign of an imminent deal with the IMF, the central bank will likely keep rates on hold,” said Mohamed Abu Basha, head of research at Cairo-based investment bank EFG Hermes. “Any action in rates would come once Egypt signs a deal with the IMF and takes a move on the EGP,” he said, referring to the Egyptian pound.

The slowing of inflation for a third month in December also favors a hold. The central bank has been on pause since a 100 basis points increase in August.

Kenya, February 6

* Central bank rate: 12.5%
* Inflation rate: 6.6% (December)
* Inflation target: 5% +/- 2.5 ppts

Kenya’s rate-setting panel will probably leave borrowing costs unchanged after a surprise 200-basis-point hike in December, aimed at supporting its battered shilling.

While inflation is within target the MPC is likely to wait to see the impact of the December tightening and sift through January inflation data to see if price growth has eased to Governor Kamau Thugge’s mid-point target of 5%. That’s according to Eric Musau, head of research & sustainable finance at Nairobi-based Standard Investment Bank.

“We think by the second half of this year, we may start to see some moderation,” he said.

Nigeria, TBC

* Policy rate: 18.75%
* Inflation rate: 28.9% (December)
* Inflation target: 6%-9%

Having not held a rate-setting meeting since July or announced when its next one will be, economists are almost certain that when the Central Bank of Nigeria’s MPC gathers under Governor Olayemi Cardoso it will deliver a jumbo increase.

“The correct thing for the new CBN governor and MPC to do is to signal a clear and unambiguous intention to fight inflation, through an aggressive raising of rates to 30% or more as well as ending all of the CBN’s developmental interventions,” said Joachim MacEbong, senior governance analyst at Stears Insights.

Stubborn inflation stoked by a rapid depreciation in the naira, security issues in food-producing regions and the removal of fuel subsidies, is yet to peak.


Edited by Bloomberg




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