What African Central Banks May Do This Month With Interest Rates

Following aggressive interest rate cuts when coronavirus restrictions shut down output, African central bankers meeting for the final time this year may find that they’ve exhausted their monetary-policy options.

Activity has improved as economies reopen, yet balancing the threat of resurgent infections against inflation that’s on the rise means most policy makers in the region will probably hold rates as they seek to support economic growth. That’s as fiscal space remains limited and relatively depressed commodity prices continue to weigh on exporters.

“Although African central banks maintain that they still target inflation, it is clear that the focus this year has shifted firmly to growth,” said Ayomide Mejabi, chief economist for sub-Saharan Africa at JPMorgan Chase Bank NA. “We expect that to continue well into next year, but the space for formal policy rate cuts is narrowing.”

Here’s what central bankers on the continent may do:

Zambia, Nov. 18
Policy rate: 8%
Inflation rate: 16% (October)
Christopher Mvunga’s first interest-rate decision as Bank of Zambia governor comes days after the nation became Africa’s first pandemic-era sovereign default.

His MPC could face a decision between helping the government raise debt via the domestic market by raising the key rate or lowering it even further to boost output that has been hamstrung by the virus and limited stimulus measures, according to Trevor Hambayi, a Lusaka-based economist. The outcome will likely set the tone for the governor’s tenure and “will be more than just a mere monetary rate policy announcement,” he said.

South Africa, Nov. 19
Repurchase rate: 3.5%
Inflation: 3% (September)

South Africa’s MPC meets as key data suggest gross domestic product may have exceeded its forecast for an annualized 45.2% increase in the three months through September. Stricter lockdowns in advanced economies that pose a threat to exports and output in the final quarter as well as the bank’s decision to front-load aggressive cuts in the first half of the year could see it stand pat.

Twelve of 16 economists in a Bloomberg survey see the rate staying at 3.5%, with the other four predicting a 25 basis point cut. Forward-rate agreements, used to speculate on borrowing costs, predict a less than one-in-four chance of a quarter percentage point cut.

Split decisions at the last three meetings suggest a lack of consensus among the MPC and that its signals are “becoming far less clear,” which supports the case for a pause, said Nicky Weimar, chief economist at Nedbank Ltd.

What Bloomberg’s Economist Says…
“Africa’s major central banks have limited policy space to maneuver. We expect them to hold rates in the coming weeks despite higher inflation as a balancing act to support the recovery amid a second viral outbreak in advanced economies. South Africa is the only exception, given its still benign inflation outlook. However, we expect the South African Reserve Bank to stay on hold as the risks are already accounted for in its aggressive front-loading of rates to date.”

Ghana, Nov. 23
Policy rate: 14.5%
Inflation: 10.1% (October)

Ghana’s central bank meets a fortnight before President Nana Akufo-Addo’s New Patriotic Party seeks re-election. His government has consistently taken credit for lowering the benchmark from 25.5% since it took office in January 2017.

After announcing that it could purchase as much as 10 billion cedis ($1.71 billion) of bonds to help finance the nation’s budget, the MPC is likely to leave the key rate on hold for a fourth straight meeting as the full impact of virus-stimulus measures have yet to filter through the economy, said Patrick Asuming, a senior lecturer at the University of Ghana Business School. Inflation is expected to return to within the bank’s 6% to 10% target by the second quarter of 2021.

Nigeria, Nov. 24
Policy rate: 11.5%
Inflation: 14.2% (October)

After a surprise 100 basis point interest-rate cut in September, Nigeria’s central bank will probably leave its benchmark rate on hold as it tries to support growth in Africa’s largest economy.

While the MPC is unlikely to change its short-term policy stance, naira depreciation and rising costs suggest upside risks to inflation forecasts, said Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital.

Foreign exchange restrictions have helped keep the currency under pressure, while border closures, violent farm attacks, and clashes between herders and farmers are driving up food prices.

Mauritius, Nov. 25
Repurchase rate: 1.85%
Inflation rate: 3.2% (October)
Mauritius’s MPC will probably leave the benchmark rate unchanged at a record low as it tries to shore up an economy expected to contract by 14.2% this year.

The bank may seek to stabilize prices at future meetings if the rupee, which has lost more than 9% of its value against the dollar this year, continues to fuel price growth, said Sanjay Matadeen, an economist and senior lecturer at the country’s Middlesex University. Inflation jumped to a six-month high in October.

Kenya, Nov. 26
Central bank rate: 7%
Inflation: 4.8% (October)

Kenya’s central bank may keep its rate unchanged for a fifth-straight meeting even as price growth is seen remaining within its 2.5% to 7.5% target range.

After 150 basis points of easing in 2020, the MPC would be reluctant to lower the benchmark as that could affect risk premiums on new loans and skew access to credit, according to Churchill Ogutu, head of research at Genghis Capital.

“Further easing of the policy rate against the backdrop of increased domestic borrowing simply means banks will focus on government securities as opposed to credit mediation to the real sector,” he said.

Angola, Nov. 27
BNA rate: 15.5%
Inflation: 24.07% (October, Luanda)

Angola’s central bank hasn’t cut its policy rate this year and is unlikely to do so now, even as the economy faces a triple shock from the virus, the drop in oil prices and a reduction in crude output to meet OPEC+ commitments.

While inflation is at the highest level in almost three years, the MPC will hold the key rate to try to bolster credit growth and economic diversification, according to Carlos Rosado de Carvalho, an economist at Luanda’s Catholic University of Angola. The consumer-price growth has been fueled by the kwanza’s 28% decline against the dollar this year.

– Bloomberg