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Africa News: Major Central Banks May Hold Rates Amid Growth Problems

By on May 17, 2021 0

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Central bankers in eight countries in sub-Saharan Africa are expected to keep interest rates unchanged for the next two weeks, as the slow rollout of Covid-19 vaccines means their economies remain vulnerable to a new wave of the virus.

After the monetary policy committees in Mozambique, Zambia and Zimbabwe were the first to rise this year globally, chances have increased that a new wave of infections and prolonged lockdowns will weigh more heavily on the recovery of the market. a region where gross domestic product has fallen the most in a quarter of a century. Last year.

That, and inflation which is being pushed up by supply and currency constraints in countries like Nigeria and Angola could be key talking points in rate deliberations. interest starting this week.

Hang tight

Eight African central banks set to leave rates unchanged

Source: Bloomberg reports

“Because growth is at the forefront for many economies, inflation will be put on the back burner,” said Yvonne Mhango, head of research for sub-Saharan Africa at Renaissance Capital. Central banks will likely live with accelerated price growth at least until the end of 2021, she said.

What Bloomberg Economics Says …

“Risks to the near-term outlook from a third wave of infections will likely keep rates on hold for now. However, rising inflation due to rising oil and food prices will continue to focus attention more on inflation. We therefore expect rates to begin to gradually normalize as the economies recover. Angola and Nigeria face the most immediate pressures to act and will likely raise rates before the end of the year. The risk is that they start on hiking cycle next week. “

–Boingotlo Gasealahwe, Africa economist

Click here to read Bloomberg Economics analysis

Here’s what central bankers in the region could do over the next two weeks:

Mozambique, May 19

  • MIMO interbank rate: 13.25%
  • Inflation rate: 5.2% (April)
Mozambique's metical has reached record highs and lows so far in 2021

The Banco de Mocambique led by Governor Rogerio Zandamela has so far proved belligerent, surprisingly with a rise of 300 basis points in January. With the upside-down performance of the metical that has caused headaches for exporters and importers, it’s hard to say when the MPC will begin to reverse this trend to help an economy which is expected to grow 1.6% this year. This estimate could be threatened after attacks in the north of the country interrupted work on a liquefied natural gas project operated by Total SE.

Read more: Total sees a delay of at least a year for the LNG project in Mozambique

Inflation may have peaked and is expected to stay around 5% for the remainder of the quarter, according to Neville Mandimika and Daniel Kavishe, analysts at the Rand Merchant Bank of FirstRand Group Ltd., who see the rates continuing in the central bank this week.

Zambia, May 19

  • Policy rate: 8.5%
  • Inflation rate: 22.7% (April)
  • Inflation target: 6% – 8%
Zambian central bank raised policy rate in early 2021 due to soaring inflation

Zambia’s MPC could face less pressure to raise its policy rate thanks to a marginal fall in inflation that is almost three times the peak of the central bank‘s official target.

While the panel will likely take advantage of slower currency depreciation and lower price growth to remain stable, it should instead cut the policy rate in an effort to support the economic recovery of the country’s first sovereign defaulter. pandemic era in Africa, said Trevor Hambayi, a Lusaka-based independent economist.

Read more: IMF to resume talks with Zambia once government implements policies

South Africa, May 20

  • Redemption rate: 3.5%
  • Inflation rate: 3.2% (March)
  • Inflation target: 3% – 6%

Ticking

South African inflation expected to exceed midpoint of central bank target

Source: Statistics South Africa, South African Reserve Bank


South Africa’s MPC will likely leave its benchmark rate at an all-time high for a fifth consecutive meeting even as inflation is expected to temporarily exceed 4.5%, where it prefers to anchor expectations, this quarter.

The central bank’s quarterly projection model, which the MPC uses as a guide, showed a 25 basis point rate hike in March this quarter, followed by another in the fourth quarter. However, Governor Lesetja Kganyago said last month that policymakers view the risks to the inflation outlook as balanced and Feel that they can continue to support Africa’s most industrialized economy.

Read more: Central Bank of South Africa governor sees possibility of keeping rates low

The MPC will likely only normalize interest rates when the second-round effects of accelerating inflation show up in basic prices and there is a chance that it can raise the benchmark index. 25 basis points in November, said Jeffrey Schultz, senior economist at BNP Paribas. South Africa. Forward rate agreements starting in seven months, used to speculate on borrowing costs, provide a more than 70% chance that the repurchase rate will be 50 basis points higher by the end of the year .

Maurice, May 20

  • Redemption rate: 1.85%
  • Inflation rate: 0.2% (April)
Mauritius lowered its key rate to an all-time high last year

The Indian Ocean island nation’s MPC will likely leave its benchmark rate at an all-time high for a fourth meeting in a row as it seeks to support the economy and private sector recovery after a second lockdown, Eric said Ng, economist at the consultancy firm PluriConseil based in Port Louis. .

After 150 basis points of easing in response to the pandemic and with inflation now at its two-year low, the central bank should heed advice from the International Monetary Fund and maintain an accommodative policy in the near term.

Read more: Mauritian economic growth depends on tourism recovery, IMF says

Ghana, May 24

  • Policy rate: 14.5%
  • Inflation rate: 8.5% (April)
  • Inflation target: 8% +/- 2
Ghana's central bank cut rates once last year and may hold for now

Ghana’s GPP is expected to maintain its benchmark rate for a seventh meeting even as inflation has slowed to a low 13-month low in April due to slower increases in food prices. The central bank had projected the cut in the key rate in the second quarter since November and pointed to the risks posed by the rise in oil prices and the new tax measures that took effect on May 1.

“The magnitude of the fall in inflation should not make the MPC blink,” said Courage Martey, economist at Databank Group in Accra. “I expect the policy rate to be maintained largely because it is a base effect” after last year’s surge that pushed price growth above the target range, he said.

Monthly price growth at the highest level in nearly a year means the panel would remain cautious.

Ghana’s preference for a large margin between its key rate and inflation could make it one of the next in the region to tighten, according to Renaissance Capital’s Mhango.

Nigeria, May 25

  • Policy rate: 11.5%
  • Inflation rate: 18.1% (April)
  • Inflation target: 6% – 9%
Nigerian food costs are rising at the fastest rate in more than 15 years

Nigeria’s key interest rate is likely to remain unchanged for a fourth meeting in a row, as concerns about the fragility of its economic recovery outweighing concerns about inflation which has remained more than double the ceiling of the official target of Nigeria. the bank. in April.

As the economy emerged from a recession in the fourth quarter and the IMF sees it grow 2.5% in 2021, Governor Godwin Emefiele said in March that the central bank cannot effectively move on to taming it. price growth only once it was satisfied that production had reached “cruising level. “

“If fundamentals and growth results improve in the near term, the committee may tend to tighten much later in the year,” said Omosalewa Arubayi, chief economist at Vetiva Capital Management. “Nigeria’s current inflationary pressure is mainly due to supply constraints, while monetary components play a secondary role.”

Read more: Nigeria Buhari Warns growing banditry of threat to food security

Kenya, May 26

  • Central bank rate: 7%
  • Inflation rate: 5.8% (April)
  • Inflation target: 5% +/- 2.5
Kenya central bank could keep key rate unchanged for 2021

Kenya’s MPC is expected to keep its policy rate stable for an eighth consecutive meeting.

“While the shocks related to Covid-19 are a source of downside risk, much more economic activity is preserved compared to last year,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank. “It would take a bigger downside shock to justify further easing, for now.”

Lower demand that counteracts the effect of rising oil prices means the rate could remain stable until 2021.

Read more: Kenya raises gasoline prices by nearly 3% after holding in April

Angola, May 28

  • BNA rate: 15.5%
  • Inflation rate: 27.66% (April, Luanda)
Weak Angolan currency pushes up inflation

Angolan policymakers are expected to maintain the key rate even as the country faces inflation at the highest level for more than three years. Indeed, much of the price pressure is seen as imported and the pass-through of the central bank rate to inflation and consumer demand from Africa’s second largest oil producer is low.

The central bank could try to fight price growth by adjusting the amount of kwanza in circulation and could raise its 2021 inflation target to 18.7%, said Carlos Rosado de Carvalho, an economist at the Catholic University of Angola.

Read more: Angola sees downtrend pick up again for inflation and rates

– With help from Matthew Hill, Taonga Clifford Mitimingi, Kamlesh Bhuckory, Ekow Dontoh, Alonso Soto, David Herbling and Candido Mendes

(Updates Nigeria bullets, text, and graph with the latest inflation data)