Soaring Inflation and Weak Currencies to Stimulate Rising Rates in Africa

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(Bloomberg) – African central banks are stepping up their fight against runaway inflation and currency weakness, with four of six monetary policy committees likely to raise interest rates over the next two weeks.

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The banks’ deliberations will likely continue to focus on soaring food, fertilizer and energy prices resulting from supply shortages caused by Russia’s war with Ukraine. The continued economic impact of the coronavirus pandemic, the risks posed by a slowing Chinese economy, expectations of more aggressive rate hikes by the Federal Reserve, and fears of a global recession which have heightened investors’ appetites. investors for the dollar and leads to a liquidation of African debt will also feature in their discussions.

Countries like South Africa and Kenya, which are more connected to global markets through asset flows, are poised to increase borrowing costs. Policymakers in Angola, one of the few global outliers with slowing inflation, are expected to leave the policy rate unchanged.

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Here is what central bankers can do:

Nigeria, July 19

Since the last Central Bank of Nigeria MPC meeting, the inflation rate has increased more than expected. It is likely to remain elevated due to rising diesel costs and continued gasoline and foreign exchange shortages, said Oyinkansola Samuel, an analyst at RMB Nigeria Ltd., a unit of FirstRand Ltd. This could bolster the MPC’s resolve to raise the key interest rate for a second. direct encounter.

“It’s not unlikely that we’ll see a 25 to 50 basis point upside,” Samuel said. RMB sees the benchmark rate at 14% by the end of the year, she said. Of the seven economists in a Bloomberg survey, four are predicting a rate hike.

South Africa, July 21

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South Africa’s central bank will continue to tighten monetary policy aggressively amid a deteriorating inflation outlook, currency weakness and pressure to keep pace with an increasingly hawkish Fed.

After breaching the ceiling of the Reserve Bank’s target range for the first time in more than five years, inflation is expected to pick up to levels last seen in the global financial crisis that tumbled the rand. While the MPC prefers to anchor inflation expectations at nearly 4.5%, heightened risks to economic growth – including flood damage in the province which is the second largest contributor to gross domestic product and blackouts deeper and more frequent currents – will also influence decision-making.

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Differing data points that support arguments for dovish and hawkish positions mean « there will likely be a diversity of views on the MPC and therefore there is room for surprises, » Peter said. Worthington, principal economist at Absa Bank Ltd. It could also mark the fifth consecutive meeting with split votes among the five-member panel.

Of 20 economists in a Bloomberg survey, 13, including Worthington, are predicting a second consecutive half-point increase, with the rest expecting a larger 75 basis point hike. Investors have fully priced a half percentage point move, but see a chance for a bigger upside.

Ghana, July 25

After the Bank of Ghana raised its policy rate by 450 basis points this year, Africa’s second most aggressive central bank, after Zimbabwe, is likely to pause its hike cycle.

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While the inflation rate remains well above the upper limit of the central bank’s target, it rose at a slower pace in June. That, and an economy that significantly underperformed expectations in the first quarter and faces more headwinds, gives the MPC a good reason to leave the policy rate unchanged, said Courage Martey, an economist at Accra’s Databank Group.

Deteriorating economic conditions, exacerbated by the war in Ukraine and US monetary tightening, persuaded the government to approach the International Monetary Fund for a bailout this month.

Kenya, July 27

Growing price pressures, soaring bond yields and currency weakness in Kenya will likely lead to a second consecutive rate hike.

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“Further tightening of 25 to 50 basis points should counteract price growth,” said Wangari Muikia, managing director of the Nairobi-based EGCL Institute. Apparent dollar shortages have limited the MPC’s ability to use alternative tools to curb inflation, such as open market operations and raising banks’ reserve requirements, she said.

Mozambique, July 27

Banco de Mocambique will likely raise its benchmark rate to temper inflation, which is above 10% for the first time in nearly five years. Soaring prices have fomented protests and a commitment by the World Bank to subsidize public transport users.

Annual inflation is expected to accelerate to around 12% in the third quarter due to higher food and transport prices, said Ridle Markus, strategist at Absa Bank Ltd. at the July meeting. It would be the second increase this year, following a 200 basis point increase in March.

Angola, July 29

The central bank of Africa’s second-biggest oil producer is expected to leave its key rate unchanged for a sixth consecutive meeting to see if the downward trend in inflation continues, said Wilson Chimoco, an economist at Catholic University. from Angola.

A stable kwanza against the dollar, supported by high oil prices and credit rating improvements, kept annual inflation in check, which slowed in June to its fastest pace this year.