Daily Nation Newspaper

INFLATION RATES TO DROP IN MOST AFRICAN COUNTRIES -AfDB

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By NATION REPORTER INFLATION rates in the Southern Africa, except Angola, are expected to drop between four to eight percent by 2019 due to improved food production, predicts the African Developmen­t Bank (AfDB) in its Southern Africa Economic Outlook 2018.

According to the report, the average inflation for the region is estimated to decelerate to 9.4 percent in 2017 and to decline further in 2018–19, stabilisin­g at around 7 percent.

The report attributed this to improvemen­t to a bumper crop harvest, and exchange rates stability, curbing pass-through effects from exchange rates to inflation.

It said the overall declining trend was also a response to tight monetary conditions instituted in 2016 to contain inflationa­ry pressures.

“Most of the countries that recorded high inflation in 2016 have experience­d a rapid reduction in 2017, most notably Malawi, where inflation declined from 21.8 percent to 12.3 percent, and Zambia, from 18.2 percent to 6.6 percent,

“Similarly, due to lower inflation and a better outlook for the medium term, the Bank of Zambia announced in November 2017 a reduction in the key policy rate by 75 basis points to 10.3 percent and the reserve ratio by 150 basis points to 9.5 percent,” said the report.

The report explained that weak economic growth, expensive credit, and lower oil prices had central banks in the region rethinking their monetary policy strategies.

It explains that in the first quarter of 2017, the South African economy entered a recession amid subdued domestic demand and low private sector activity, coupled with policy uncertaint­y, which reduced investor confidence. The report further explains that the country’s credit rating was also downgraded by two rating agencies to sub-investment grade in April and November 2017.

It says the South African Reserve Bank reduced the reported rate in July 2017 by 25 basis points to 6.8 percent to bolster the economy.

“The country’s economy moved out of recession in the second quarter, as quarterly growth accelerate­d to 2.8 percent from –0.6 percent in the first quarter. The economy continued to grow in the third quarter, at 2.0 percent,

“A build-up of inflationa­ry pressure in South Africa stokes a rise in other countries given the country’s position as a major trading partner and the source of most imports, particular­ly food,” said the report.

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