SARB and other key African central banks aren’t rushing to raise interest rates
JOHANNESBURG - Central banks in some of sub-Saharan Africa’s biggest economies may be more concerned about the impact of a potential third wave of coronavirus infections and a slow rollout of vaccines than quickening inflation, leaving borrowing costs unchanged for now.
Monetary policy committees in Ghana, Nigeria, South Africa, Kenya and Angola are unlikely to follow those in Brazil, Turkey, Mozambique, Zambia and Zimbabwe just yet when they announce their decisions on interest rates in the next eight days.
Inflation in the continent’s two biggest oil producers, Nigeria and Angola, is in double digits and rising, and the currencies remain under pressure.
However, the risks to the recovery of most economies in the region after the worst slump in half a century last year, remain elevated.
After some African central banks cut to record lows in 2020, most have reached the limit on monetary policy easing and an extended pause in key rates seems likely in countries where there is less severe pressure on exchange rates, according to Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank.
The region’s policy makers may also take comfort from an accommodative global monetary policy environment, with the Federal Reserve signaling that U.S. interest rates will remain near zero through 2023.
Lower-for-longer global interest rates mean African central banks won’t be forced to tighten policy in a bid to keep local assets attractive to offshore investors.
What Bloomberg economics says...
"We expect Africa’s major central banks to stay on hold in the coming weeks to support a continued recovery in output. However, the accommodative stance is unlikely to last much longer due to rising inflation pressures.
- Boingotlo Gase-alahwe, Africa economist
Here’s what central bankers in sub-Saharan Africa may do:
South Africa, March 25
Repurchase rate: 3.5 percent Inflation rate: 3.2 percent ( January) Inflation target: 3 percent - 6 percent
The South African Reserve Bank (SARB) bank will likely hold the key rate for a fourth meeting even as fuel and electricity price increases due in April are set to push inflation closer to the midpoint of its target range.
Concerns about inflation will probably mean the five-member panel will vote unanimously for an unchanged stance, after their preferences were split between cutting and holding at the last three meetings, Elize Kruger, an independent economist, said.
All 15 analysts in a Bloomberg survey expect the MPC to hold the benchmark at a record low and forward-rate agreements, used to speculate on borrowing costs, are pricing in a less than 45 percent chance of a 25 basis-point hike.
The MPC could take advantage of the accommodative global environment to "maximise the stimulation that they can give the economy via low interest rates," Kruger said.
The panel is likely to remain tolerant of negative real rates for as long as the rand is relatively stable and will be wary to tighten pre-emptively amid recessionary conditions, she said.
Other African economies that are due to announce rate decisions this month are Ghana, Nigeria, Kenya and Angola.
Ghana, March 22
Policy rate: 14.5 percent Inflation rate: 10.3 percent (February)
Inflation target: 8 percent +/- 2
Ghana’s MPC is expected to hold its benchmark rate for a sixth meeting as it assesses how new tax measures announced this month and higher utility costs affect inflation that’s been above the target range for most of the past year.