Central bankers in sub-Saharan Africa are likely to focus more on domestic factors than global developments when they decide on interest rates in the next two weeks. Most will likely opt to pause.
Since the monetary policy committees of some of the region’s key economies last met, data showed that South Africa’s economy contracted in the third quarter, Nigerian food inflation quickened due to border closures and in Ghana, which will have an election late this year, the currency gained some ground after reaching a record low against the dollar.
The emerging-market fallout of geo-political tensions between the US and Iran may be countered by a deescalation of America’s trade war with China, said Cobus de Hart, chief economist for West, central and North Africa at NKC African Economics. “Domestic factors are still the overriding drivers of monetary policy in most of these countries,” he said.
This is what central bankers in sub-Saharan Africa may discuss:
SOUTH AFRICA, JANUARY 16
Repurchase rate: 6.5%
Inflation rate: 3.6% (November)
South Africa has multiple reasons to cut. Real interest rates are at the highest level in almost a decade, inflation has been at or below the mid-point of the target range for a year, break-even rates measuring price-growth expectations are near a record low and the economy may have slumped into a second recession in as many years after it contracted in the third quarter of 2019.
However, the continued deterioration in government finances and fears of capital outflows if the country loses its last investment-grade credit rating from Moody’s Investors Service mean the central bank will probably be cautious and hold, said Elna Moolman, an economist at Standard Bank Group. Of the 19 economists surveyed by Bloomberg, 16 predict the MPC would leave the benchmark rate unchanged. Three forecast a 25 basis-point reduction.
“Neither lower-than-expected inflation in the fourth quarter of 2019 nor signs of further weakness in the economy will prompt the SARB to cut rates at its Jan. 16 policy meeting. With inflation risks skewed to the upside, it would take a sustained decline in inflation to put near-term easing on the table,” said Bloomberg Africa economist Boingotlo Gasealahwe.
ZIMBABWE, JANUARY 17
Policy rate: 35%
Inflation rate: 481%, according to Bloomberg calculations (November)
Zimbabwean central bank governor John Mangudya is facing rampant inflation, a weakening currency and an economy in crisis.
The MPC will have to decide between containing price growth and spurring the economy at its first meeting, according to Stephen Mashozhera, head of advisory at the Harare-based Access Finance. Policy makers will likely lower interest rates in a bid to boost lending and investments, he said.
While the MPC will meet on Friday, it may only announce its decision next week.
NIGERIA, JANUARY 24
Policy rate: 13.5%
Inflation rate: 11.9% (November)
The Central Bank of Nigeria is expected to hold its key rate for a fifth straight meeting as it seeks to stem price pressures. Inflation in Africa’s top oil producer quickened to 11.9% in November, well above the target band, as the closing of the country’s borders, which started in August to curb smuggling, sent food costs soaring.
While Governor Godwin Emefiele has said the inflationary impact of the border closure is temporary, prices will remain under pressure as long as the boundaries remain shut, said Abiodun Keripe, the Lagos-based head of investment research at Afri Invest. This, together with a proposed electricity tariff hike and currency pressures may force the MPC to adopt a tighter policy stance in the second half of the year, he said.
KENYA, JANUARY 27
Central bank rate: 8.5%
Inflation rate: 5.8% (December)
The repeal of a controversial law that capped interest rates and distorted the transmission of monetary policy may give Kenya’s MPC room to ease, but analysts are divided about whether there’s space for further cuts this month.
Churchill Ogutu, a senior research analyst at Nairobi-based Genghis Capital, said the central bank will probably wait to assess the impact of the 50 basis-point cut two months ago before easing again. Others say that with inflation that’s expected to remain inside the target range of 2.5% to 7.5%, Governor Patrick Njoroge could move faster.
“The Central Bank of Kenya could cut its policy rate by another 50 basis points to 100 basis points by the end of the first quarter,” said Vinita Kotedia, an analyst at EFG Hermes Kenya.
GHANA, JANUARY 27
Policy rate: 16%
Inflation rate: 7.9% (December)
Ghana’s central bank will probably leave its key rate unchanged for the sixth consecutive meeting even after inflation came in below the year-end target set by the government.
Ghana heads to elections in December and the risk of overspending in the run-up to the vote will keep monetary policy makers cautious, Yvonne Mhango, an economist at Renaissance Capital, said by phone from Johannesburg. The MPC will keep the rate unchanged to “maintain inflation around current levels,” she said.
ANGOLA, JANUARY 27
BNA rate: 15.5%
Inflation rate: 16.6% (November)
Policy makers in Africa’s second-biggest oil producer will probably maintain a tight monetary policy stance, according to Carlos Rosado de Carvalho, an economist at Angola’s Catholic University. This is to support the liberalization of Angola’s foreign-exchange market and ward off inflationary pressures that will stem from increasing fuel and public-transportation costs, he said.