Africa’s largest economies are set to diverge from the global path of lower interest rates as they grapple with high inflation and currency pressures. While some countries such as Nigeria and Angola are expected to raise rates to curb price growth and support their currencies, others such as South Africa, Kenya and Ghana are likely to keep rates on hold to assess the impact of previous hikes and external risks.
This contrasts with the major advanced economies, where markets are pricing an end to the most aggressive tightening cycle in a generation amid signs of slowing growth and easing inflation. The US Federal Reserve, which raised rates four times in 2023, is seen as done with its rate hikes, while the European Central Bank and the Bank of England are also expected to pause their tightening plans.
According to Bloomberg, November and December will be a marathon month for interest-rate decisions in Africa, with 15 central banks scheduled to meet. The outcomes will have implications for the continent’s growth prospects, debt sustainability and exchange rates.
Here are some of the key economies to watch:
Nigeria: Rate Hike Looms as Inflation Soars
Nigeria’s monetary policy committee, in its first meeting to be chaired by Governor Olayemi Cardoso, is forecast to hike interest rates to tame inflation that may reach 30% in the coming months, according to Barclays Plc.
The meeting that had been scheduled to convene Nov. 20-21 has been called off, Isa Abdulmumin, the central bank’s spokesman, said by text message on Monday. No new date was given.
Inflation has been kept elevated by a 40% plunge in the naira against the dollar since the easing of foreign exchange controls in mid-June and the removal of fuel subsidies.
Barclays analysts led by Michael Kafe said in a quarterly research report that “decisive action” is needed to restore credibility and support the currency. They expect an increase of 325 basis points at the next meeting, followed by further tightening in the months ahead.
Of the 12 economists polled by Bloomberg, one predicts the central bank to hold rates and the rest expect an increase, with projections ranging from between 25 basis points to 325 basis points.
Angola: Reluctant Hikers May Give In to Inflation
Angola, Africa’s second-largest oil producer, may also raise borrowing costs under Governor Manuel Tiago Dias, who has been reluctant to do so despite high levels of domestic public debt and quickening inflation.
Inflation is projected to reach more than 20% next year, stoked by a reduction in fuel subsidies and a steep depreciation in the kwanza.
Deputy Governor Pedro Castro e Silva said earlier this month that the central bank will maintain a restrictive monetary policy into 2024.
Wilson Chimoco, an economist at Universidade Catolica de Angola, said the central bank may lift rates to curb inflation and attract foreign investors.
South Africa: Hawkish Hold Expected as Inflation Eases
South Africa’s Reserve Bank is expected to keep its benchmark rate unchanged for a third straight meeting as inflation is anticipated to start easing toward the midpoint of its 3% to 6% target range.
The central bank, which raised rates by 100 basis points in 2023, is likely to deliver a hawkish message to anchor inflation expectations and support the rand, which has been battered by global risk aversion and domestic political uncertainty.
The rand’s performance will also depend on the outcome of the ruling African National Congress’s elective conference in December, where President Cyril Ramaphosa will seek to secure a second term as party leader.
Egypt: Devaluation May Prompt Rate Hike
Egypt’s rate decision is likely to be a toss-up between a hike and a hold. The North African country hasn’t raised borrowing costs since August, even as it battles high inflation, with the central bank likely to wait until it can enact another long-awaited currency devaluation.
That moment may be approaching. December’s meeting comes a little over a week after elections in which President Abdel-Fattah El-Sisi is all but certain to win a third term. The authorities probably won’t give Egypt’s 105 million people another price shock before the ballot, but they may move swiftly afterwards to loosen the reins on Egypt’s pound and meet the conditions of an IMF rescue program review.
While Societe Generale SA predicts a devaluation soon after votes are tallied, analysts at Deutsche Bank AG and Morgan Stanley expect the adjustment next quarter.
A weaker pound could boost inflation, which is already above the central bank’s target range of 7% plus or minus 2 percentage points, and prompt a rate hike to contain price pressures and attract foreign investors.
Kenya, Ghana, Morocco: On Hold for Now
Other African countries are likely to keep rates on hold for now, as they monitor the impact of previous tightening and the external environment.
Kenya’s central bank, which raised rates by 150 basis points in 2023, is expected to maintain its policy stance as it assesses the risks to inflation from high fuel prices and a weak shilling.
Ghana’s monetary authority, which hiked rates by 165 basis points in 2023, is also likely to pause as inflation is forecast to keep slowing and debt-restructuring talks with the IMF progress.
Morocco’s central bank, which lifted rates by 75 basis points in 2023, is set to hold borrowing costs at the highest level since mid-2014 as it allows the economy more time to absorb the tightening cycle that halved the inflation rate this year from a three-decade high.
The outlook for interest rates in Africa will depend on how the continent’s economies cope with the challenges of inflation, currency volatility and debt sustainability. While some countries may have to tighten monetary policy further, others may find room to ease as inflation pressures subside and growth prospects improve.
Source: Bloomberg
