Africa’s biggest economies set to hold interest rates as inflation risks persist

by MMC
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(Bloomberg) — Central banks in Africa’s largest economies are expected to diverge from their counterparts in emerging markets in Latin America and Europe over the next two weeks as they maintain tight monetary policies to deal with persistent inflation.

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Egypt, South Africa, Morocco, Kenya and Ghana are set to maintain their policy interest rates at current levels while assessing inflation risks linked to domestic and global factors, including tensions geopolitics in the Middle East. Nigeria’s rate decision looks like a choice between raising and holding.

Nigeria, Egypt and Ghana face upward pressure on prices due to weak currencies, while South Africa feels the impact on food prices from hot and dry weather conditions . A change in the Federal Reserve’s interest rate forecast, which foresees a delay in easing, could also become a risk factor for African currencies.

Morocco, March 19

Morocco’s central bank is expected to remain cautious and keep its key interest rate stable even though inflation is at its lowest level in more than two years.

The board of Bank Al-Maghrib will probably choose to maintain the rate at 3% throughout the year, predicts Attijari Global Research, the research unit of the leading Moroccan lender. The kingdom then seeks to preserve the anchoring of its currency to the euro and the dollar. The situation will likely only change after the Fed and European Central Bank start easing rates.

Ghana, March 25

After cutting interest rates for the first time since 2021 in January, the Bank of Ghana will be cautious about a further move. Indeed, the cedi, Africa’s third worst-performing currency this year, is expected to continue to weaken, putting upward pressure on prices.

The inflation rate rose unexpectedly in January before slowing slightly last month and is expected to rise again.

“A larger rise in inflation is expected in March, which could bring the rate close to the 25% mark before the decline resumes in April. The monetary policy decision will therefore be to maintain the rate and observe how things develop before making the next decision,” said Courage Boti, an economist at Accra-based GCB Capital Ltd. in May.”

Nigeria, March 26

After raising the benchmark interest rate by 400 basis points last month and banks’ minimum cash reserve rate from 32.5% to 45%, analysts are divided on whether the central bank of Nigeria will raise rates again.

Mohamed Abu Basha of EFG Hermes Holding expects the CBN to remain stable as last month’s action has stabilized the naira, which will help curb inflation. “Not only is the official rate stabilizing, but we are also seeing almost full conversion with the parallel market, which is a further sign of good health for the naira,” he said.

The central bank has devalued the local currency twice since June and narrowed the gap between its policy rate and yields on short-term securities to attract foreign capital flows.

Conversely, Oyinkansola Samuel and Usoro Essien of Rand Merchant Bank predict that the monetary policy committee will raise the policy interest rate by 100 basis points to contain inflation, which is expected to peak at 33.1% in May due to the weakness of the naira.

South Africa, March 27

As inflationary risks persist, policymakers at the South African Reserve Bank are also expected to remain cautious and keep the benchmark rate at a 15-year high of 8.25% until at least the third quarter.

“The SARB is still very concerned, firstly, about the risks to upward inflation arising from factors such as administered prices, and a possible spillover into wage inflation because we have experienced a sharp rise in cost of living,” said Sanisha Packirisamy, economist at Momentum. Investments. “But also, global dynamics, because we had the Red Sea conflict and there is still potential for upside surprise on energy and food prices.”

Egypt, March 28

After carrying out the highest interest rate hike on record on March 6, Egypt’s central bank is expected to suspend its monetary tightening when policymakers meet.

The North African nation raised rates by 600 basis points, minutes before allowing its currency to lose nearly 40% of its value against the dollar.

Even though inflation accelerated unexpectedly in February, the central bank should not “react so quickly,” Basha said. “He will likely prefer to wait for March-April inflation figures before potentially further tightening.”

Kenya, April 3

Kenya’s monetary authority is expected to leave the benchmark rate unchanged after aggressive tightening in December and February. The currency also went from one of the world’s worst performing currencies to the best in less than three months, after the East African nation offered to buy back part of $2 billion in debt and announced its intention to sell new titles.

Inflation risks have diminished due to the slowdown in key drivers, namely food and fuel prices, according to Stephanie Kimani, an economist at Nairobi-based I&M Group Plc. The best bet for now is to maintain it, “given that the main motivation for previous hikes was aid to the Kenyan shilling,” she said.

–With the help of Souhail Karam, Ekow Dontoh, Ruth Olurounbi, Ntando Thukwana, Mirette Magdy and David Herbling.

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