Central banks shift course as turmoil shakes Africa
Central banks in Africa — poised to reveal their first response to the emerging-market turmoil of the past month — are likely to usher in an end to the continent’s easing cycle.
There is a week to go before the US Federal Reserve delivers what could be its third interest-rate increase of the year. Currency weakness from the wider market sell-off preceding that move and a pick-up in inflation may persuade officials to freeze borrowing costs.
Central bankers in Nigeria, Ghana and Kenya are likely to keep key rates unchanged at their meetings next week.
On Thursday, SA officials are seen by some economists as open to a potential hike.
Russia raised its key rate by 25 basis points, while Turkish regulators increased the rate by 625 basis points.
"We are slowly seeing the effects of … emerging-market events in the rest of Africa," Celeste Fauconnier, an analyst at Rand Merchant Bank, said.
"It’s safe to say the cutting trend in most of Africa is over," she said.
"We’re unlikely to see a reaction like that of Turkey and Russia, but the chances of further rate cuts are very slim."
The rand has lost 11% against the dollar since the start of August, pushing inflation expectations to a three-month high.
Tax measures announced in July add to price pressure in Ghana that was caused by the cedi’s weakness. While inflation remains inside the central bank’s target band, it has picked up from its April low.
The currency’s drop has big consequences for inflation and it is "not certain how long this will persist and how the cedi will end the year", said Courage Boti, an Accra-based economist at Databank Group.
While Kenya’s monetary policy committee has said there is room for a more accommodative stance, price pressures due to the introduction of a tax on fuel and the decision by legislators to not repeal a law capping commercial borrowing costs may temper this. The central bank "is unlikely to move again in the short term given the risk of an uptick in inflation", said economist John Ashbourne.
Nigeria’s inflation rate rose for the first time in 19 months in August and pre-election spending combined with a record budget could exacerbate price pressures.