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What African Central Banks Will Discuss in the Next Week

Lesetja Kganyago, governor of South Africa's central bank, speaks during an interview at the South African Reserve Bank in Pretoria, South Africa, on Tuesday, June 4 2019. South Africas central bank wont bail out the countrys troubled state-owned companies including power utility Eskom Holdings SOC Ltd. because it would fuel inflation, Kganyago said. Photographer: Waldo Swiegers/Bloomberg via Getty Images

Central banks in key sub-Saharan African economies are expected to diverge on policy when they make interest-rate calls in the next week as some seek to tame inflation and others to boost growth.

Factors outside the usual ambit of monetary policy committees will also influence their calls. Since these panels last met, a deteriorating fiscal outlook in South Africa placed it one step closer to a full house of junk credit ratings, Ghana raised its budget-deficit forecast and Kenya scrapped a controversial law that capped interest rates.

“Where external liquidity is weak, or foreign-currency stability threatened, we expect central banks to either tighten or at least remain on hold,” said Razia Khan, the chief economist for Africa and the Middle East at Standard Chartered Bank Plc.

Here’s what the central bankers may do in the coming days:

Zambia, Nov. 20

  • Policy rate: 10.25%
  • Inflation rate: 10.7% (October)
Zambia's inflation rate exceeds the central bank's target band

Zambia’s central bank faces a choice between stemming inflation that’s at a three-year high and propping up production hit by rolling blackouts that last more than 15 hours a day.

Governor Denny Kalyalya warned in August that the central bank could raise interest rates if inflation doesn’t return to its target band of 6% to 8%, but “any rise in the monetary policy rate will be suicidal for a country that already projects the lowest growth rate in over a decade,” said economist Chibamba Kanyama. A Bloomberg survey of economists shows gross domestic product expanding just 2% this year.

South Africa, Nov. 21

  • Repurchase rate: 6.5%
  • Inflation rate: 4.1% (September)
Markets are pricing in a 33% chance of a 25 basis-point rate cut

While the South African Reserve Bank’s quarterly projection model suggests the bank will hold the benchmark rate, forward-rate agreements — used to speculate on borrowing costs — are pricing in a one-in-three chance of a 25-basis-point reduction. That’s as headline inflation has remained within the bank’s target range of 3% to 6% for 30 months. The five-year breakeven rate, a measure of inflation expectations, has dropped 37 basis points this month to the lowest level since at least 2012.

Read more on how South Africa could move deeper into junk territory

Twelve of the 14 economists in a Bloomberg survey expect the bank to maintain the rate at 6.5%. The MPC is facing calls to ease policy to boost an economy that’s forecast to expand only 0.5% this year. However, a 25 basis-point cut will only increase growth by 0.1 percentage point a year later, said Christie Viljoen, an economist at PwC, citing the bank’s model.

Ghana, Nov. 25

  • Policy rate: 16%
  • Inflation rate: 7.7% (October)
A weak cedi may see Ghana hold the key rate

The Bank of Ghana will probably hold its key interest rate even as inflation dipped below the mid-point of its target band of 6% to 10% when the statistics office started using a new base year in August. That’s as it seeks to protect the cedi, which has lost 11% of its value against the dollar in 2019.

While President Nana Akufo-Addo asked the central bank to find ways to reduce interest rates to boost lending, a higher-than-expected budget deficit may act as a “source of concern,” according to Patrick Asuming, a senior lecturer at the University of Ghana Business School. The bank doesn’t have a strong basis to cut the rate, he said.

Kenya, Nov. 25

  • Central bank rate: 9%
  • Inflation rate: 5% (October)
Rate-Cap Challenge

Kenya’s MPC, due to meet for the first time since lawmakers repealed a rule that capped interest rates and distorted the transmission of monetary policy, will probably cut the rate.

That “would have the intended effect of lowering the cost of credit, which would make it more attractive to borrow,” said Yvonne Mhango, an economist at Renaissance Capital.

Nigeria, Nov. 26

  • Policy rate: 13.5%
  • Inflation rate: 11.6% (October)
Stubbornly high inflation limits the Nigerian MPC's room to cut borrowing costs

Nigeria’s central bank is likely keep its rate on hold for a fourth meeting even as inflation jumped to a 17-month high. That’s as policy makers look for ways to jump-start an economy projected to grow just 2% this year. Governor Godwin Emefiele has said the bank won’t consider cutting rates before inflation slows to the 9% ceiling of the target band.

“The bank is focusing more on growth than inflation and currency at the moment,” said Wahab Mustapha, an analyst with Cordros Securities.

Mauritius, Nov. 27

  • Repurchase rate: 3.35%
  • Inflation rate: 0.4% (October)
Mauritian inflation is at a seven-month low

A slowdown in consumer-price growth could prompt the Bank of Mauritius to cut its interest rate to another record low to boost economic growth. The annual rate of inflation fell to a seven-month low in October.

A rate cut to 3% “would be motivated by the necessity to give a further boost to the economy amid a slowdown noted in key markets,” said Ganessen Chinnapen, an independent economist. The statistics agency lowered its economic growth forecast for 2019 to 3.8% from 3.9%.


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