African Central Banks to Hold Key Rates Amid Virus Resurgence

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Central bankers in six sub-Saharan African countries are likely to leave borrowing costs unchanged in the coming weeks as a resurgence of coronavirus infections driven by a highly permeable delta variant threatens to undermine economic recovery.

Since monetary policy committees in some of the region’s major countries last met, temporary restrictions on movement were imposed to avoid a catastrophic fourth wave of infections in western Kenya. In South Africa, the resumption of strict lockdown measures and deadly riots have emerged as major risks to economic growth.

Higher oil prices could spur economic growth in Nigeria, the continent’s top crude producer. But the increased cost of imported refined fuel will also fuel consumer-price rise, adding to the pressure of rising food costs.

Although policymakers are expected to see rising prices and raise interest rates only after the virus eases, they will be wary of falling far behind frontier markets such as Ukraine, which are already beginning to tighten, the deputy chief of staff. Economist Aomide Mejabi said – Saharan Africa at JP Morgan Chase Bank NA. Relatively low rates can make the country’s financial assets less attractive to offshore investors.

Still, multilateral support from the Group of 20 countries, which have extended debt-relief measures for some of the world’s poorest countries to the end of the year, and the allocation of new reserves by the International Monetary Fund should ease fiscal pressure and countries. Should get some relief. Mejabi said there is room to put rates on hold.

What does Businesshala Economics say…

“We expect Africa’s major central banks – South Africa, Nigeria, Kenya and Ghana – to remain on growth concerns in the coming weeks as the continent grapples with a third wave of infections amid slow vaccine rollouts.”

–Boingotlo Gaselawe, African economist

Here’s what regional central bankers can do:

Mozambique, 21 July

  • MIMO Interbank Rate: 13.25%
  • Inflation rate: 5.52% (June)

Mozambique’s central bank will likely leave its benchmark interest rate unchanged for a third straight meeting, even though annual inflation rose in June.

Rand Merchant Bank analysts Neville Mandimica and Daniel Kavishe of FirstRand Group Ltd said consumer-price growth will probably remain within the 4% to 6% range this year due to a slowdown in demand for goods and services. This means flat interest rates for the rest of 2021, he said in a note.

South Africa, 22 July,

  • Repurchase Rate: 3.5%
  • Inflation rate: 5.2% (May)
  • Inflation target: 3% – 6%

The South African Reserve Bank is expected to drop its key rate to record levels for a sixth straight meeting as strictest lockdown measures since May 2020 and deadly riots disrupted activity in two major provinces dimmed the prospects for economic recovery.

The central bank’s quarterly projection model, which the MPC uses as a guide, indicated a 25 basis point increase in one rate in the second quarter in May and another in the fourth. It deviated from the model leaving the benchmark unchanged in its last meeting and may now soften its stance about tightening.

“The scale of the uncertainty in South Africa right now due to the lockdown and unrest gives us even more reassurance that this very fast meeting is not going to happen,” said Gina Showman, an economist at Citibank South Africa. It is likely that the MPC will not give a clear indication of when it will begin to normalize interest rates as it awaits data to assess the impact of the disruptions, she said.

Ghana, 26 July

  • Policy Rate: 13.5%
  • Inflation rate: 7.8% (June)
  • Inflation target: 8% +/- 2

Ghana’s central bank is expected to halt in 2020 after unexpectedly cutting its key rate to a nine-year low to support the recovery of an expanding economy at the slowest pace in 37 years.

“There is no reason for the policy rate to move in either direction,” said Karez Marte, an economist at the Accra-based Databank Group. “The hike in rates would create an impression that there was a policy mistake. A further rate cut would also not allow enough time for the earlier decision to take effect and affect credit and growth. The impact of oil prices, which have increased since rate cuts and cost pressures, including a 13% increase in transport fares since last month, is yet to be fully reflected in inflation data.

Nigeria, 27 July

  • Policy Rate: 11.5%
  • Inflation rate: 17.75% (June)
  • Inflation target: 6% – 9%

Nigeria’s MPC is expected to hold its key rate for the fifth meeting as it seeks to support the recovery of Africa’s largest economy.

While price data suggest that inflation, which is almost double the central bank’s official target range, may already be peaking, policymakers have made it clear that they will only look at consumer prices after seeing solid growth momentum. switch to control.

“The risks to inflation are limited in the near term, and it makes an easy decision to stand on policy parameters at the July meeting,” said Mosop Arubai, an economist at IC Asset Managers. “Their stance may change, however, at the last or final meeting of the year if trends in the global economy continue to promote an economic victory for Nigeria.”

Kenya, 28 July

  • Central Bank Rate: 7%
  • Inflation rate: 6.3% (June)
  • Inflation target: 5% +/- 2.5

Kenya’s MPC is likely to keep its key rate unchanged for the ninth consecutive meeting, even as higher fuel prices threaten to escalate inflation.

Ken Gichinga, chief economist at Nairobi’s Mentoria Economics, said muted demand due to pandemic restrictions, including evening-to-morning curfews, monetary policy tools would not help contain cost-push inflation, driven by higher oil prices. . “Virus containment measures mean the economy is running on one engine,” he said.

A better bet would be to stabilize the local currency and for the government to accelerate the rollout of Covid-19 vaccines, he said.

Mauritius, Aug. 4

  • Repurchase Rate: 1.85%
  • Inflation rate: 5.9% (June)

After postponing its MPC meeting scheduled for May, Mauritius policymakers must now leave the key rate at a record low to support an economy that has contracted in 2020 for three years against the highest inflation in four decades. is at a high level.

While the MPC will likely hold the benchmark next month, indicators suggest the island nation has “reached the end of an adjustment cycle,” said Bhavish Jugurnath, an economist and lecturer at the University of Mauritius. “We may see a tightening of monetary policy as inflation picks up due to higher import prices and a weaker rupee.” Source: Businesshala