Central banks in some of Africa’s biggest economies will likely look past high inflation and US policy tightening and hold interest rates over the coming weeks to shore up their recoveries from the Covid-19 stasis.
Since monetary policy makers on the continent last met, US consumer prices soared to a near four-decade high, setting the stage for the Federal Reserve to begin hiking interest rates as soon as March, which could lead to a sell-off of emerging-market currencies and dollar bonds in nations with high debt.
Price growth in Nigeria, Ghana, Angola and Zimbabwe that was already in double-digits has accelerated, stoked by rising food and oil prices.
Even so, most major central banks are set to prioritise supporting fragile economies over taming price growth by leaving key interest unchanged in the coming days.
Africa’s “growth recovery is a lot slower and weaker, and implies that central banks have to be a lot more cautious when it comes to the tightening,” said Yvonne Mhango, Renaissance Capital’s head of research for the continent.
She also cautioned that its nations lacked the resources to provide the level of fiscal stimulus that helped developed markets like the US recover faster.
Borrowing costs are only expected to rise in South Africa, whose liquid capital markets make it vulnerable to tightening by developed market central banks; and Zimbabwe, which is contending with an inflation rate of more than 60 percent and a sliding currency.
Here’s what central bankers in Africa may do:
Zimbabwe’s central bank is expected to continue its aggressive monetary-policy tightening in 2022 after lifting the main rate to 60 percent from 40 percent in October to arrest high inflation and a declining currency.
“The Reserve Bank of Zimbabwe has rightly diagnosed the problem which they face, which is how to stabilise the exchange rate, which is the main driver of inflation, rather than interest rates,” said Tony Hawkins, an economics professor at the University of Zimbabwe.
While it’ll lift its key rate that won’t be enough to “catch up with inflation,” he said. He expects the inflation rate to top 100 percent this year.
The Zimbabwean dollar has plunged by almost a third since September.
That’s due to an unrelenting increase in money supply, high levels of imports and long delays in settlement at the central bank’s weekly currency auction, according to the Confederation of Zimbabwe Industries, the country’s largest business lobby group.
The MPC, which meets January 28, will release its interest-rate decision by February 8.
The Central Bank of Nigeria will likely keep its key rate at a six-year low despite a surprise uptick in inflation in December.
Governor Godwin Emefiele signalled in November that the monetary policy committee’s existing stance should “continue for a little longer” to stabilise prices and buttress economic growth.
“We see the CBN raising the policy rate by 150 basis points in 2022, but for this tightening to be delivered in the second half of the year,” said David Faulkner, economist at HSBC.
Eight of the nine economists in a Bloomberg survey expect rates to remain steady and one sees a 100 basis points increase.
The Banco de Mocambique will probably hold its benchmark interest rate, a year after surprising with a 300 basis-point hike, to ensure a durable economic recovery.
It’s likely to maintain the prevailing stance “for some time,” said Fausio Mussa, chief economist at Standard Bank Group Ltd.’s local unit.
That’s as the central bank sees inflation, which slowed for the first time in six months in December remaining below 10 percent in the short- to medium-term, supported by the stabilisation in its currency.
The metical has been trading at 63 to the dollar since June, after a topsy-turvy performance that caused headaches for exporters and importers.
South Africa’s central bank is likely to continue its hiking cycle and raise its benchmark repurchase rate by 25 basis points.
That’s even as the economy reels from the impact of a fourth wave of omicron-driven coronavirus infections, which saw several nations sever air ties with Africa’s most industrialisation nation.
The move will be driven by an upward revision to its inflation forecasts and oil price assumptions after price-growth surged to a near five-year high in December, said Elize Kruger, an independent economist.
Raising the key rate will help keep inflation expectations anchored close to the 4,5 percent midpoint of the central bank target’s range, preserve the appeal of local assets to offshore investors and act as an “insurance policy” against interest-rate normalisation by developed market central banks, she said.
Fifteen of the 16 economists in a Bloomberg survey predict a quarter-point increase and one a 50 basis points hike.
Forward-rate agreements starting in one month, used to speculate on borrowing costs, show traders are pricing in a more than 100 percent chance of a quarter-point increase. — Bloomberg.