Central bankers in eight sub-Saharan African countries are likely to keep interest rates unchanged in the next two weeks as a slow rollout of Covid-19 vaccines means their economies remain vulnerable to a new wave of the virus.
After monetary policy committees in Mozambique, Zambia and Zimbabwe were the first globally to hike this year, chances increased that a new wave of infections and extended lockdowns could further weigh on the recovery of a region where gross domestic product slumped the most in a quarter century last year.
That, and inflation that’s pushed up by supply-side and currency constraints in countries such as Nigeria and Angola could be key talking points in interest-rate deliberations that kick off this week.
“Because growth is at the forefront for many economies, inflation will be placed on the backburner,” said Yvonne Mhango, head of research for sub-Saharan Africa at Renaissance Capital. Central banks are likely to live with quickening price growth at least until the end of 2021, she said.
Here’s what central bankers in the region may do in the next two weeks:
Mozambique, May 19
* MIMO interbank rate: 13.25%
* Inflation rate: 5.2% (April)
The Banco de Mocambique under Governor Rogerio Zandamela has so far proved hawkish, surprising with a 300 basis-point hike in January. The metical’s topsy-turvy performance that has caused headaches for exporters and importers makes it hard to tell when the MPC will start to reverse that move to help an economy that’s projected to grow 1.6% this year. That estimate may be at risk after attacks in the north of the country disrupted work at a liquefied natural gas project operated by Total SE.
Inflation may have peaked and should remain at around 5% for the rest of the quarter, according to Neville Mandimika and Daniel Kavishe, analysts at FirstRand Group Ltd.’s Rand Merchant Bank, who see the central bank holding rates this week.
Zambia, May 19
* Policy rate: 8.5%
* Inflation rate: 22.7% (April)
* Inflation target: 6% - 8%
Zambia’s MPC may face less pressure to raise its key rate thanks to a marginal drop in inflation that’s almost triple the top of the central bank’s official target.
While the panel will probably take advantage of slower currency depreciation and lower price growth to hold steady, it should rather cut the key rate in a bid to support the economic recovery of Africa’s first pandemic-era sovereign defaulter, said Trevor Hambayi, a Lusaka-based independent economist.
South Africa, May 20
* Repurchase rate: 3.5%
* Inflation rate: 3.2% (March)
* Inflation target: 3% - 6%
South Africa’s MPC will probably leave its benchmark rate at a record low for a fifth straight meeting even as inflation is set to temporarily breach 4.5%, where it prefers to anchor expectations, this quarter.
The central bank’s quarterly projection model, which the MPC uses as a guide, in March indicated one rate increase of 25 basis points this quarter followed by another in the fourth quarter. However, Governor Lesetja Kganyago said last month policy makers see risks to the inflation outlook as balanced and feel that they can continue to offer support to Africa’s most-industrialized economy.
The MPC is only likely to normalize interest rates when the second-round effects of quickening inflation show in core prices and there is a chance that it could lift the benchmark by 25 basis points in November, said Jeffrey Schultz, a senior economist at BNP Paribas South Africa. Forward-rate agreements starting in seven months, used to speculate borrowing costs, are pricing in a more-than 70% chance that the repurchase rate will be 50 basis points higher by the end of the year.
Mauritius, May 20
* Repurchase rate: 1.85%
* Inflation rate: 0.2% (April)
The Indian Ocean island nation’s MPC will probably leave its benchmark rate at a record low for a fourth consecutive meeting as it seeks to support the economy and private sector’s recovery from a second lockdown, said Eric Ng, an economist at Port Louis-based consultancy PluriConseil.
After 150 basis points of easing in response to the pandemic and with inflation now at a two-year low, the central bank is expected to heed the International Monetary Fund’s advice and maintain an accommodative policy stance in the near term.
Ghana, May 24
* Policy rate: 14.5%
* Inflation rate: 8.5% (April)
* Inflation target: 8% +/- 2
Ghana’s MPC is expected to hold its benchmark rate for a seventh meeting even as inflation slowed to a 13-month low in April on the back of slower food-cost increases. The central bank had projected this drop in the headline rate in the second quarter since November and has flagged risks posed by rising oil prices and new tax measures that took effect on May 1.
“The magnitude of decline in the inflation should not cause the MPC to blink,” said Courage Martey, an economist at Accra’s Databank Group. “I expect the policy rate be maintained largely because this is a base effect” after last year’s surge that pushed price growth above the target range, he said.
Monthly price growth at the highest level in almost a year means the panel would remain cautious.
Ghana’s preference for a sizeable margin between its key rate and inflation could make it among the next in the region to tighten, according to Renaissance Capital’s Mhango.
Nigeria, May 25
* Policy rate: 11.5%
* Inflation rate: 18.2% (March)
* Inflation target: 6% - 9%
Nigeria’s key interest rate is likely to remain unchanged for a fourth straight meeting as concerns about the fragility of its economic recovery outweigh concerns about inflation that is more than double the ceiling of the bank’s official target.
While the economy came out of a recession in the fourth quarter and the IMF sees it growing at 2.5% in 2021, Governor Godwin Emefiele said in March the central bank can only effectively shift to taming price growth once it’s comfortable that output has reached “cruise level.”
“If growth fundamentals and outcomes improve in the near term, the committee may tend toward tightening much later in the year,” said Omosalewa Arubayi, chief economist with Vetiva Capital Management. “Nigeria’s current inflationary pressure is driven primarily by supply constraints, while monetary components play a secondary role.”
Kenya, May 26
* Central bank rate: 7%
* Inflation rate: 5.8% (April)
* Inflation target: 5% +/- 2.5
Kenya’s MPC is likely to keep its key rate steady for an eighth straight meeting.
“While Covid-19 related shocks are a source of downside risk, a lot more economic activity is preserved versus last year,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank. “It would take a more significant downside shock to justify further easing, for now.”
Lower demand that is countering the effect of rising oil prices means the rate could remain stable through 2021.
Angola, May 28
* BNA rate: 15.5%
* Inflation rate: 27.66% (April, Luanda)
Angolan policy makers are likely to hold the key rate even as the country contends with inflation at the highest level in more than three years. That’s because a lot of the price pressures are seen as imported and the pass-through from the central bank rate to inflation and consumer demand in Africa’s second-biggest oil producer is weak.
The central bank may attempt to tackle price growth by adjusting the amount of kwanza in circulation and could raise its 2021 inflation target of 18.7%, said Carlos Rosado de Carvalho, an economist at the Catholic University of Angola.