Report: African Central Banks Poised for Rate Hikes as Inflation Bites Harder

•Nigeria, S’Africa, others likely to tighten monetary policy

Emmanuel Addeh in Abuja with agency report

Africa’s three biggest economies are poised to raise interest rates this week as well as next week while policy makers in several other countries stake out different approaches to navigate inflation shocks and bring prices under control, Bloomberg reported yesterday.

The central banks of Nigeria, South Africa and Egypt are among six likely to tighten monetary policy in the days ahead, it said, while another six countries are set to pause as they assess the impact of previous hikes and relief measures to contain prices.

Topping the agenda would be the implications that weaker local currencies would have on the cost of imported goods, as aggressive rate hikes by the Federal Reserve and expectations of more to come boost the dollar.

The repercussions of Russia’s war in Ukraine and an anticipated downturn in Europe and China, alongside emerging price pressures from extreme weather events, are also likely to be in the spotlight.

Nigeria’s central bank was expected to step up monetary tightening after inflation hit a fresh 17-year high in August. It threatens to remain elevated because of floods in its food-producing regions, a surge in diesel costs and continued currency weakness, the report added.

Bloomberg quoted Central Bank of Nigeria Governor, Godwin Emefiele as saying at the July MPC meeting that policy makers could lean towards additional hikes if inflation continues to be “aggressive.” An increase in the benchmark would take it over 14 per cent for the first time since the rate was adopted in 2006.

The central bank, “may feel there is still some scope to raise rates in order to attract foreign exchange inflows,” said Joachim MacEbong, lead analyst at Lagos-based Acorn and Sage Consulting. “Inflation remains a serious concern,” he added.

In South Africa, worries over unanchored inflation expectations and increased depreciation pressure on the rand will probably see the country’s Reserve Bank raise its key rate for a sixth straight meeting, said Sanisha Packirisamy, an economist at Momentum Investments.

All the economists polled by Bloomberg said they expected the MPC to raise its benchmark to 6.25 per cent from 5.5 per cent, in what would be the first time it hiked rates by 75 basis points at consecutive meetings.

In the same vein, economists surveyed by Bloomberg are divided over what Egypt’s central bank will do at its second meeting since Hassan Abdalla became acting governor after Tarek Amer’s shock resignation.

While a minority of forecasters predict the benchmark deposit rate will stay at 11.25 per cent for a third meeting, most see an increase of 50 to 100 basis points to curb annual inflation that hit its highest level in almost four years.

A hike would also make the North African nation’s assets more attractive after months of quickening price gains turned its rates negative when adjusted for inflation, undercutting the appeal of the country’s domestic bonds and bills to foreign investors. The country has seen some $20 billion in foreign outflows from its local debt market this year.

In Ghana, stabilisation in the cedi since mid-August will probably see policy makers in the country stand pat or stick to existing rates. The currency has plunged 39 per cent against the dollar this year, sending inflation to its highest level in more than two decades

At an extraordinary meeting last month, the Bank of Ghana raised its key interest rate by three percentage points, adding to 550 basis points of increases since November. It also announced measures to boost foreign-exchange reserves and support the cedi.

In Angola, a downswing in inflation will likely see rate setters in the country, which vies with Nigeria as Africa’s biggest oil producer, cut borrowing costs, making it an outlier at a time of global monetary tightening, Bloomberg said.

Price growth has already dropped below 20 per cent for the first time in more than two years and the central bank forecasts it will slow to less than 18 per cent by the end of the year.

Morocco hasn’t raised interest rates for more than a decade, and it might keep bucking the global trend for monetary tightening, the report said.

With wage hikes for lower-earning households kicking in this month and subsidies due to offset energy costs for consumers, authorities may wait to see the impact on inflation, which is running at its highest since the 1980s.

For Kenya, in the first rate decision since William Ruto was sworn in as president, policy makers will likely look past inflation even though it’s been above the central bank’s 7.5 per cent ceiling since June. Kenya’s MPC sees price pressures easing, probably allowing it to extend a pause for a second straight meeting.

Governor Patrick Njoroge told lawmakers on Monday that global prices of imported goods have started to come down and the central bank is optimistic that by November, the East African nation won’t need subsidies on products like fuel to keep costs in check. Kenya scrapped a subsidy on gasoline this month but kept one for diesel and kerosene.

In smaller African economies, the report suggested that Eswatini and Lesotho, whose currencies are pegged to the rand, will probably follow South Africa’s central bank and hike on Friday and Tuesday respectively.

Rate setters in Mauritius who are confronting the highest inflation in almost 14 years will likely raise borrowing costs for a third straight meeting on Septembee 28. The MPC is “very mindful of the trajectory that inflation is taking,” Governor Harvesh Seegolam said in an interview earlier this month.

Zimbabwe on September 23 and Mozambique a week later are set to hold borrowing costs after introducing sweeping measures to curb soaring inflation and aggressively raising rates this year.

Policy makers in the Seychelles, one of the few global outliers with slowing inflation, are expected to leave the key rate unchanged, Bloomberg projected.