In October, African Central Banks will convene to deliberate on the growing risks of increasingly weakening currencies and borrowing costs.
The flurry of decisions from the monetary authorities will likely see South Africa, Egypt, Morocco and Ghana keep rates steady. Nigeria, Angola and Kenya are expected to confront currency weakness by lifting borrowing costs.
According to Yvonne Mhango, Africa economist, “The Angolan kwanza and the Nigerian naira have devalued by around 40% in the year to date. Kenya’s shilling has fallen by 16% and the South African rand is down by 10%. Weaker currencies are placing upward pressure on inflation. Central banks still seeking to rein in inflation are likely to hike policy rates.”
Policymakers at Banco Nacional de Angola are set to raise interest rates to quell inflation, address a surge in money supply and defend the currency from further weakness, said Wilson Chimoco, an economist at Universidade Catolica de Angola.
The annual inflation rate in Africa’s third largest oil producer climbed to 13.5% last month from 12.1% in July — its biggest monthly percentage increase in at least five years.
Inflationary pressures have intensified after the government stopped defending the kwanza in May and cut gasoline subsidies a month later, which almost doubled pump prices that had been among the cheapest in the world.
Mauritius
The Bank of Mauritius will likely keep the key rate unchanged for a second straight meeting as base effects are expected to continue to support the downward trend in inflation.
Any concerns over currency weakness can be dealt with by intervening in the foreign-exchange market and providing guidance as to where it wants the rupee to be rather than hiking rates, said Takesh Luckho, an independent economist.
By month-end, the tourism-dependent Seychelles is set to hold rates at a record low of 2% even as it battles its longest phase of deflation in seven years.
While the deflationary trend creates pressure to cut rates for the first time in more than two years, the decision isn’t clear cut as it carries risks to financial stability, said Ingrid Sinon, a Victoria-based economist and chief executive officer of Cutting-Edge Consulting.
South Africa, September 21
Repurchase rate: 8.25%
Inflation rate: 4.7% (July)
Inflation target: 3%-6%
Economists are almost certain that rate setters at the South African Reserve Bank will stand pat for a second successive meeting while delivering a hawkish message after increasing borrowing costs by a cumulative 475 basis points since November 2021. Of the 15 participants surveyed by Bloomberg, 13 expect a hold, one a hike and another a cut.
“We think that the SARB will exercise patience and adopt a wait-and-see approach to determine what the real economic impact has been of previous monetary policy tightening,” said Sanisha Packirisamy, an economist at Momentum Investments. “We are beginning to see signs of consumer stress as households battle an increase in the cost of living.”
A drop in inflation expectations and a decline in the rate of price growth to within the central bank’s target range provide it with room to pause, Packirisamy said.
Eswatini and Lesotho, whose inflation is also slowing and have their currencies pegged to South Africa’s rand, may match the Reserve Bank’s move by month-end.
Egypt, September 21
Deposit rate: 19.25%
Inflation rate: 37.4% (August)
Inflation target: 7% +/- 2 ppt
After surprising with a 100 basis point interest rate hike in August, Egypt is expected to pause its monetary tightening this month.
“The central bank will likely wait until the latest rate increase filters through,” said Mohamed Abu Basha, head of macroeconomic research at Cairo-based EFG Hermes. While annual consumer prices kept accelerating in the past two months to new records, monthly trends are “clearly hinting towards a slowdown in inflationary pressures,” he said. Tobacco and volatile food items were the main drivers.
The North African nation increased its benchmark last month to 19.25%, the highest in data that stretches back to 2006, and above a previous peak reached during the currency crisis of 2016-2017.
Mozambique, September 22
MIMO interbank rate: 17.25%
Inflation rate: 4.9% (Aug.)
Mozambique’s central bank could cut its benchmark interest rate by 100 basis points to 16.25% when it meets, according to Ridle Markus, a macroeconomist at Absa Group.
Annual inflation in August slowed to an almost three-year low, giving room for looser monetary policy after price growth peaked at nearly 13% a year ago. Still, rising oil prices might prompt the Banco de Mocambique to take a cautious approach and postpone the cut to the November meeting, Markus said.
Kenya, October 3
Central bank rate: 10.5%
Inflation rate: 6.7% (Aug.)
Inflation target: 5% +/- 2.5 ppts
Kenya’s MPC is likely to increase the benchmark rate by 50 basis points to cushion its depreciating currency and firmly anchor inflation despite it being within the target band.
“Ongoing oil price strength, combined with a more rapidly depreciating shilling, may keep the authorities cautious,” according to Razia Khan, chief economist, Africa and Middle East at Standard Chartered Bank. The nation’s efforts to revive its interbank forex market “are best served by a tight monetary policy stance,” she said.
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