After emergency meetings and aggressive interest-rate cuts to buffer their economies against the effect of the coronavirus pandemic, some central bankers in Sub-Saharan African economies may follow a more measured approach when they sit down for their deliberations in the next two weeks.

While monetary policy committees (MPC) in SA and Kenya will probably take advantage of scope to lower rates even further, those in Nigeria and Zambia may continue to buck the global trend by holding. Zambia may even mull a rate hike.

“The initial concern was the hit to economic activity and growth and cutting rates was an attempt to try to mitigate that,” said Yvonne Mhango, an economist at Rencap Securities. “The concern now is also going to be currencies.”

Here’s what central bankers in the region may do this month.

Ghana, May 15

  • Policy rate: 14.5%
  • Inflation rate: 7.8% (March)

After the Bank of Ghana cut its key rate to an eight-year low in the middle of March, analysts are split about its next move. Three of the six economists in a Bloomberg survey expect the bank to leave the rate unchanged while the rest predict more easing on Friday to boost an economy that’s forecast to grow at the slowest pace in 37 years and three said the MPC will hold. The median estimate is for a 25 basis point (bps) reduction.

The central bank may also announce measures to prop up specific sectors of the economy, according to Patrick Asuming, a senior lecturer at the University of Ghana Business School. With excess liquidity in the market and lenders that are cautious about giving credit to the private sector, banks need guidance on loan-to-deposit requirements and direction on the industries earmarked to spur growth, said Courage Martey, an Africa economist at Databank Group in Accra.

“Additional liquidity in the form of a rate cut will not solve the problem,” he said.

Zambia, May 20

  • Policy rate: 11.5%
  • Inflation rate: 15.7% (April)

With inflation at a 43-month high and a currency that’s lost more than a fifth of its value against the dollar this year, cutting isn’t an option for the Bank of Zambia. The MPC will decide between raising the policy rate in attempt to stabilise the economy or providing relief by leaving it unchanged.

“Increasing the rate at this time is comparable to taking blood from a patient who has  an anaemic condition,” said Chibamba Kanyama, a Lusaka-based economist. “I expect the MPC to hold as a way of stimulating the economy.”

SA, May 21

  • Repurchase rate: 4.25%
  • Inflation rate: 4.1% (April)

SA’s Reserve Bank may reduce its benchmark interest rate for the fourth time this year as it seeks to support an economy that could contract as much as 16.1%.

With inflation likely to test the 3% lower bound of the Bank’s target range and risks to the growth outlook skewed to the downside, there’s scope for a reduction of a further 125bps this year, according to Mpho Molopyane, an economist at FirstRand Group’s Rand Merchant Bank (RMB).

“At the moment, the Bank is not worried about inflation,” she said. “We’ve seen other emerging markets cutting interest rates quite aggressively, taking real rates to zero or negative territory in some cases. The Bank definitely has scope to take the real rate to zero.”

While RMB’s baseline view is for a 50bps reduction this month, there is an increasing likelihood the MPC could move by a full percentage point after economic indicators showed a nationwide lockdown brought activity close to a standstill in April, and with no indication when restrictions could be eased, she said.

What Bloomberg’s economist says

“We think the SA Reserve Bank will cut rates by a further 25bps due to a weaker growth and inflation outlook. Despite partial easing, the economy remains under lockdown and stimulus deployment remains slow. Oil prices also remain well below the Bank’s forecast of $42/bbl for the year and the Stats SA essential products-consumer price index shows muted price pressures.

“Unlike the rest of the world, interest rates in SA remain well above zero and the repo remains the main monetary policy tool.” Boingotlo Gasealahwe, Africa economist

Nigeria, May 26

  • Policy rate: 13.5%
  • Inflation rate: 12.3% (March)

Central bankers in Africa’s biggest economy will continue to hold the key rate as it grapples with a marked slowdown due to the pandemic and the slump in the price of oil — the nation’s top export. The plunge in crude prices has forced it to devalue the naira, while inflation has been above the target band for almost five years.

“The Central Bank of Nigeria has demonstrated its resolve to ride out this crisis and see if any of the current shifts in global economic behaviour become more permanent,” said Ikemesit Effiong, the Lagos-based head of research at SBM Intelligence. It’s unlikely that the MPC “will rock the boat” because the fundamentals of the West African economy are the same as before the crises, he said.

Kenya (date to be confirmed)

  • Central bank rate: 7%
  • Inflation rate: 5.6% (April)

Kenya’s MPC is expected to cut the benchmark interest rate for a fifth straight meeting when they gather during the last week of May. That’s because the East African economy is operating below its potential due to coronavirus-related shocks, said Jibran Qureishi, Stanbic Holdings’s economist for East Africa.

While the central bank rate is at a nine-year low of 7%, it could be cut to as little as 5% by the end of the year, according to Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank.

Mauritius (date to be confirmed)

  • Repurchase rate: 1.85%
  • Inflation rate: 4.2% (April)

Policymakers in Mauritius slashed the repo rate to 1.85% — the lowest since the introduction of this monetary policy mechanism — at an unscheduled meeting last month, after forecasts showed the nation’s economy would contract for the first time in four decades.

Given the cut was an attempt to stimulate activity and lending on an island reliant on income from tourism and exports, and with consumer-price growth at an acceptable level, the MPC will vote to keep the rate unchanged, according to economist Takesh Luckho.

“A further cut in the repurchase rate could be used as a joker card in the near future, depending on the economic recovery.” 


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