Real rates and emerging inflation rates are the reasons six African nations may cut interest and four nations may hold back.
The central banks of Nigeria and South Africa, the two largest economies of Africa, aim to change course on interest rates. This will occur for the first time in many years as inflation lets up.
At least five other countries, including Morocco and Ghana, are expected to follow South Africa’s lead in lowering policy levers in the coming days, with several implementing moderate interest-rate decreases to stabilize inflation expectations. Angola is expected to join Nigeria, which has hiked interest rates since May 2022, in maintaining current policy attitudes.
The Citi Chief Africa Economist, David Cowan said that the central banks in Africa will continue to benefit from the monetary policy decisions while keeping the exchange rates in mind.
“This will result in a cautious rate cycle across Africa for the rest of 2024 and into 2025, with central banks prepared to continue to run quite significantly real positive policy rates to limit currency depreciation”, he added.
According to the head of African research at Standard Bank Group Ltd, Jibran Qureshi, there have been threats to destabilize inflation due to geopolitical risks and the expectation could suggest some caution among the continent’s central banks.
Real rates and emerging inflation rates are the reasons for six African nations may cut interest and four nations may hold back.
The three-week monetary policy roller coaster will begin on Thursday, with the South African Reserve Bank expected to decrease the benchmark interest rate for the first time since the Covid-19 pandemic triggered an aggressive easing cycle in 2020.
Annual inflation in August is expected to have eased to 4.5%, the midpoint of the central bank’s target range at which it prefers to anchor expectations, according to Yvonne Mhango. This, combined with a benign outlook for consumer-price growth, will encourage policymakers to cut the key rate by a quarter point to 8%. Lowering oil costs and a stronger rand should help to limit price growth. The disparity between the policy target and the inflation rate has already reached its highest level in 18 years.
The policy committees of Mozambique, Ghana, Kenya and Eswatini are on the path to reduce their key interest rates. As per forecast their inflation rates are to fall due to their currencies can either be relatively stable or be appreciated against the dollar. This could also be due to their recent drop in Brent crude prices.
Central bankers will also be comforted by predictions that the Federal Reserve will drop interest rates on Wednesday and may continue to soften policy. This measure would keep the interest rate differentials between the US and African countries from narrowing too much, making some of the continent’s currencies less appealing to investors.
On September 24, Nigeria’s policymakers will most likely suspend a tightening cycle that has raised the benchmark rate to 26.75% from 11.5% in just over two years. They’ll be encouraged by inflation falling to a six-month low in August as they consider the effects of floods in the northeast and a 45% spike in petrol costs on pricing.
Angola’s MPC, like Nigeria’s, would want to examine what the drop in oil prices means for its currency and will most likely retain its policy benchmark, despite statistics indicating that inflation peaked in July. Oil accounts for the majority of both governments’ income.
Tanzania’s central bank is likewise expected to maintain interest rates due to the inflationary effects of prolonged currency weakening. Its shilling has fallen about 4% versus the dollar since June due to dollar scarcity.
Lesotho’s MPC often follows South Africa’s because its currency is pegged to the rand, but it is unlikely to do so this time. According to Lyle Begbie, an economist at Oxford Economics Africa, inflation is predicted to continue high at 6.7%, and the country’s key rate is already 50 basis points lower than its neighbour. “It will likely only be cut in November,” he stated.