SA Reserve Bank. Picture: MARTIN RHODES
SA Reserve Bank. Picture: MARTIN RHODES

African central banks have joined the global wave of emergency meetings and unusual measures to cushion their economies against the effects of the coronavirus pandemic.

While many of the central banks in the region target inflation and have to prop up volatile currencies, they’ve also used non-traditional policy tools in addition to aggressively cutting interest rates, to salvage economic growth and encourage more lending to consumers and businesses.

Lockdowns have brought economic activity to a halt in many African countries, leaving deserted the streets of the commercial hubs of Lagos in Nigeria and Johannesburg in SA, suspending exports to try to maintain domestic food supplies and stopping travel.

That means the effects of the coronavirus are transmitted to African economies much faster than during the global financial crisis, when they were largely affected through external channels, said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank.

“The response has been proactive,” she said. “But the nature of the threat requires it to be so.”

These are examples of the steps taken by some of the region’s central banks:

Big cuts

  • Egypt’s central bank slashed rates by 300 basis points at an emergency meeting in March.
  • Ghana and Kenya both cut their key interest rates to an eight-year low and the East African country’s monetary policy committee will meet again in April instead of waiting for its scheduled bimonthly gathering in May.
  • Mauritius and Namibia reduced their benchmark rates to record lows, with SA's biggest cut in more than a decade giving its northwestern neighbour room to ease.

Buying bonds

  • The SA Reserve Bank said it would start buying debt in the secondary market to boost liquidity.
  • Ghana will amend its central bank laws to allow the government to borrow up to 10% of the previous year’s tax revenue from the Bank of Ghana — double the current rate.

Banks’ requirements

  • At least 10 central banks, including those of Botswana, SA, Kenya and Malawi, have announced lower reserve or liquidity requirements for commercial lenders to encourage more lending.

Currency measures

  • Nigeria devalued the naira as the oil price crashed, bringing the exchange rate closer to the black-market value.
  • Zimbabwe restored its currency’s peg to the greenback as the local unit crashed and foreign exchange became scarce.

In countries such as SA, the burden of support has fallen on the central bank because the government lacks the fiscal space and resources to provide stimulus. Despite their efforts, central banks alone won’t be able to stimulate the regional economy out of a coronavirus crisis.

It could take African economies up to three years to recover from the slowdown and the continent needs emergency stimulus of $100bn including debt-servicing waivers, according to the region’s finance ministers.

“I suspect governments feel they can’t afford a bigger fiscal response unless they are given much-needed support from the Group of Seven (G7),” said Charlie Robertson, Renaissance Capital’s global chief economist.

“The virus is a global threat so there are good, selfish reasons for the West to support African efforts to fund the suppression of the virus.”

Bloomberg