Fed grants African banks reprieve to pause on rates
Central banks in west and east Africa may have room to hold off on raising interest rates this week as the U.S. Federal Reserve scaled back expectations for tighter policy, buoying emergingmarket currencies. Ghana, Kenya and Nigeria are set to announce interest-rates decisions after taking divergent policy options in 2015. While Ghana and Kenya raised interest rates to curb currency weakness and accelerating inflation, Africa's largest economy opted to cut borrowing costs to support growth. This week all three will probably hold, according to analysts surveyed by Bloomberg.
"The U.S. Fed decision to pause on hiking interest rate gives room to central banks in Ghana and Kenya to also pause," Courage Kingsley Martey, an economist at Accra-based Databank Group Ltd., said by phone on March 17. "Developments with the Ghanaian currency have been better than expected and that lowers the risk for inflation, and the Kenyan shilling has been well-behaved." From Zambia to South Africa, African currencies were among the worst hit by a slide in investor sentiment toward emerging and frontier markets last year. Now investors have tempered their expectations for further U.S. rate increases and commodity prices recovered from a 16-year low, restoring some of the appeal of emerging markets and propping up African currencies. The Bloomberg commodity index is up 3.6 percent so far this year, after falling almost 25 percent in 2015.
South Africa's Reserve Bank increased its benchmark repurchase rate for the third consecutive meeting last week, saying the rand's 25 percent plunge against the dollar and rising food prices due to the worst drought in more than a century pose upside risks to its inflation outlook. Price growth in Africa's most industrialized economy accelerated to 6.2 percent in January, exceeding the central bank's 3 percent to 6 percent target band. Ghana and Kenya, which are due to announce rate decisions on Monday, are set to keep their benchmark rates at 26 percent and 11.5 percent respectively, according to most of the economists surveyed by Bloomberg. The Central Bank of Nigeria will probably maintain its key interest rate unchanged at 11 percent on Tuesday, according to all 14 economists surveyed by Bloomberg. After slumping by 11 percent last year, prompting the Central Bank of Kenya to raise borrowing costs by 300 basis points, the shilling has gained 0.7 percent against the dollar since the start of the year.