Sticky inflation to spur interest rate hikes in seven key African economies

Central banks in seven of 11 African nations will likely raise interest rates at their final monetary policy committee (MPC) meetings of the year to tackle stubbornly high inflation and support their currencies.

Nigeria, South Africa and Ghana are among those projected to raise borrowing costs over the next two weeks.

Mozambique and Botswana are set to stand back as inflation is forecast to have peaked and Angola will probably remain an outlier at a time of global monetary tightening and cut borrowing costs for a second time this year.

Key in their decision making will be the Federal Reserve’s interest-rate path, after US annual inflation slowed more-than-expected in October, and its potential impact on the dollar.

Read: US inflation to cool only slightly, keeping big Fed hike in play

The Fed’s most aggressive monetary policy tightening since the early 1980s has sent the greenback surging, stoking the costs of imported food and fuel in developing markets and making it even more difficult for African central banks to temper price growth.

The deteriorating global economic outlook that’s shifting the monetary policy narrative toward less aggressive increases is also likely to feature in deliberations.

Nigeria, 22 November

• Policy rate: 15.5%
• Inflation rate: 21.1% (Oct)
• Inflation target: 6%-9%

While Nigeria’s inflation is accelerating at a slower pace, it’s likely to remain elevated because of devastating floods in food-producing regions and naira weakness. That, and a decline in foreign-exchange reserves to a 13-month low in October, will probably see the Central Bank of Nigeria increase its benchmark rate for a fourth straight meeting, said Oyinkansola Samuel, an analyst at FirstRand’s unit RMB Nigeria Ltd.

Governor Godwin Emefiele warned at the MPC’s September meeting that “as long as inflation is trending upwards, we cannot assure anybody that we will not raise rates.”

The median estimate of 10 economists polled by Bloomberg is for an increase of 1 percentage point.

Kenya, 23 November

• Central bank rate: 8.25%
• Inflation rate: 9.6% (Oct)
• Inflation target: 5% +/- 2.5 ppts

Kenyan policymakers are likely to raise the key rate for a second straight meeting after inflation accelerated more than anticipated in October. Price growth is likely to remain sticky due to increases in excise duties, the removal of fuel subsidies and the continued depreciation in the shilling that’s being fueled by diminishing international reserves.

The MPC “will want to strike a balance between managing the cost of domestic borrowing, managing the rate of inflation, and Kenya shilling stability,” said Renaldo D’Souza, head of research at Nairobi-based Sterling Capital Ltd.

Four of six economists in a Bloomberg survey expect the central bank to raise rates, with the remainder seeing no change.

Zambia, 23 November

• Policy rate: 9%
• Inflation rate: 9.7% (Oct)
• Inflation target: 6%-8%

Zambia’s central bank will probably leave its key rate unchanged because consumer-price growth has remained steady since the MPC last met, said Trevor Hambayi, an independent Lusaka-based economist.

Holding the policy rate will give the MPC time to assess the impact on inflation of a 3% decline in the kwacha against the dollar since its August meeting. The average inflation rate for the year through October is slightly below its 11.4% estimate for 2022.

South Africa, 24 November

• Repurchase rate: 6.25%
• Inflation rate: 7.5% (Sept)
• Inflation target: 3%-6%

South Africa’s MPC will vote on interest rates against the backdrop of slowing inflation in an economy flirting with recession.

While the panel is widely expected to raise the key rate, economists and traders can’t agree on the quantum.

The median of 19 economists’ estimates in a Bloomberg survey is for a hike of three-quarters of a percentage point, with projections for an increase ranging from between 50 to 100 basis points.

Read:
Inflation slows but interest rates set to rise … again
Key data suggests SA’s economy has averted a technical recession
Citibank ‘cautiously optimistic’ about SA’s 2023 economic outlook

After front-loading its fight against inflation, the MPC will probably opt for a three-quarter point increase to add to the “upfront medicine” and not risk further eroding the differential that makes local assets attractive to foreign investors, said Elize Kruger, an independent economist.

“The panel should rather opt for a 50 basis-point increase as monetary policy actions filter through to the economy in four to six quarters – by which point price-growth will already be on a firm downward trajectory and the real interest rate will be positive again,” added Kruger.

Eswatini, Lesotho and Namibia, whose currencies are pegged to South Africa’s rand, will probably match the SA Reserve Bank’s move by month-end.

Angola, 25 November

• BNA rate: 19.5%
• Inflation rate: 16.7% (Oct)

Inflation that slowed to a three-year low – and gave Angola the second-highest positive real interest rate of 58 nations tracked by Bloomberg – may see the MPC cut borrowing costs for a second straight meeting, said Wilson Chimoco, an economist at Universidade Catolica de Angola.

The MPC prefers an implicit real interest rate “close to zero,” he said.

Ghana, 28 November

• Policy rate: 24.5%
• Inflation rate: 40.4% (Oct)
• Inflation target: 8% +/- 2 ppts

Ghana’s rate decision is likely to be a close call. Business sentiment has slumped to levels last seen during the height of the Covid-19 pandemic and deteriorating economic conditions are fueling protests.

After an 11-percentage-point increase in the key rate since November, two of three economists in a Bloomberg poll expect another hike to curb inflation that quickened more-than-forecast in October.

A sharp decline in the cedi since the Bank of Ghana’s last MPC meeting and producer prices that surged 19.6 percentage points to 65.2% in October are likely to keep headline consumer inflation elevated.

Mozambique, 30 November

• MIMO interbank rate: 17.25%
• Inflation rate: 11.1% (Oct)

Mozambique’s central bank is set to hold its benchmark rate as annual inflation, which was reweighted in October, has likely peaked and is expected to slow further next year, Absa Group analysts Ridle Markus, Mpho Molopyane and Tlhologelo Thoka said in a note.

Botswana, 1 December

• Policy rate: 2.65%
• Inflation rate: 13.1% (Oct)
• Inflation target: 3%-6%

Policymakers in Botswana will probably keep the key interest rate unchanged for a second straight meeting as a large cut in gasoline prices at the end of October is poised to ease pressure on inflation.

The central bank also expects the economy to operate below full capacity in the short to medium term.

© 2022 Bloomberg