Fed grants African banks re­prieve to pause on rates

The Pak Banker - - COMPANIES/BOSS -

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.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.