African central banks are expected to maintain tight monetary policies in the coming weeks, bucking the global trend towards lower interest rates.
Investors expect the Federal Reserve to make at least two interest rate cuts this year.
While global markets are moving towards monetary easing, several African countries are taking a different path due to unique economic pressures.
cautious approach
According to analysts who spoke to Bloomberg, persistent inflation and weak local currencies are pushing for this cautious approach to the black continent, with one notable exception.
“The broader theme is caution and data reliance, with central banks closely monitoring inflation and currency trends,” said Angelika Goliger, chief economist at EY Africa consultancy.
Interest Rate Decisions Across Africa
Over the next three weeks, African central banks are set to make several key interest rate decisions, with sub-Saharan Africa’s biggest oil producers, Nigeria and Angola, set to raise benchmark interest rates due to persistent double-digit inflation and currency depreciation.
In contrast, South Africa, Egypt, Kenya and Ghana are expected to keep their monetary policy rates steady.
Mozambique stands out as an exception, as it is expected to continue lowering borrowing costs.
Currency pressures
The currencies of Angola, Nigeria and Ghana were among the worst performers in Africa this year. The continued demand for the US dollar has exacerbated their depreciation, significantly affecting prices, as follows:
- NigeriaInflation is expected to remain near its highest levels in 3 decades, driven by the depreciation of the currency.
- AngolaInflation expected to rise to its highest level in 7 years.
- Ghana:Inflation is expected to slow, contrary to the expectations of the Central Bank of Ghana.
Bloomberg pointed out that countries responded to these expectations, as Angola doubled the minimum wage to 70,000 kwanza ($79), while Nigeria partially restored fuel subsidies, which put pressure on public finances.
“Currency weakness, loose monetary policy and cost pressures are all factors that will likely force these central banks to maintain a hawkish stance for longer,” JPMorgan Chase’s Gobolahan Taiwo told Bloomberg.
persistent inflation
High inflation rates in many African countries are another critical factor influencing monetary policy decisions:
- Egypt: Policymakers are expected to keep the key interest rate at 27.25%, as inflation slowed for a fourth straight month in June but remained elevated at 27.5%. Wage increases and fuel price adjustments are expected to slow the pace of inflation reduction.
- South Africa: The central bank is likely to leave its key interest rate unchanged at 8.25%. Although annual inflation was 5.2% in May, it has remained above target for more than three years.
In Kenya, Bloomberg says ongoing anti-government protests could influence the central bank’s decision to keep rates on hold.
The protests have disrupted businesses and renewed currency pressure after the government abandoned a plan to raise taxes by 346 billion shillings ($2.7 billion).
