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African Central Banks May Say They’ve Done What They Can for Now - BLOOMBERG

SEPTEMBER 16, 2020

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  •  Central bankers from Cape to Cairo to vote on rates this month
  •  Above-target inflation will convince some MPCs to hold rates

African central banks meeting in the next two weeks may decide that they’ve done all they can for now to shore up their economies against the havoc wrought by the coronavirus pandemic.

Most in the region will probably hold rates as inflation remains above target, while policymakers in Morocco will consider the risk of deflation. A recession in South Africa and muted price growth in Kenya make those nations outliers still considering rate cuts, although their room for maneuver is also narrowing.

While a pickup in activity “could embolden most MPC’s to stand pat,” an easing bias will persist in countries where policymakers aren’t convinced their economies are sufficiently recovering, said Jibran Qureishi, the Nairobi-based head of Africa research at Standard Bank Group Ltd. “We don’t see much scope for meaningful rate cuts from these levels.”

On Hold

Only South Africa and Kenya's MPCs may consider lowering key rates


Here’s what central bankers on the continent may do:



South Africa’s MPC meets a week after data showed virus restrictions put the economy into its longest recession in 28 years as second-quarter gross domestic product contracted more than the central bank’s estimate. While the committee tempered expectations for further aggressive easing at its last meeting, Governor Lesetja Kganyago recently said muted inflation gives it room to respond if the nature of the shock caused by the pandemic is worse than forecast.

The market is split on the timing of a potential rate cut. Of the 17 economists in a Bloomberg survey, nine predict a 25 basis-point drop this week and the rest see the rate unchanged. Forward-rate agreements, used to speculate on borrowing costs, suggest a higher probability of it happening in November. Downward revisions to the MPC’s GDP and inflation forecasts would support the case for a reduction, said Gina Schoeman, an economist at Citibank South Africa.

Nigeria, Sept. 22

  • Policy rate: 12.5%
  • Inflation: 13.2% (August)

Nigerian policymakers will probably leave the key rate steady even as Africa’s largest economy is predicted to contract the most in nearly 40 years. Consumer-price growth has been stuck above the target band of 6% to 9% since 2015 and shows no sign of easing.

The MPC could lower the cash-reserve ratio from 27.5%, said Samuel Segun, an Africa analyst at SBM Intelligence. The rate weighs on the profitability of lenders and reduces access to finance for small businesses, going against the central bank’s drive to support the economy, he said.

Morocco, Sept. 22

  • Interest rate: 1.5%
  • Inflation: -0.1% (July)

Morocco’s central bank will weigh whether this year’s unprecedented easing is enough to offset the economic impact of the pandemic. Just over half of the local investors polled by a unit of the kingdom’s largest lender expect the central bank to hold the benchmark rate after 75 basis points of cuts this year. The nation is struggling to tame the virus, dimming hopes for a prompt and solid rebound in the crucial tourism sector.

Business owners, including the main CGEM lobby, are warning of deflation and hundreds of thousands of potential job losses -- events that could spur protests in a country already struggling with youth unemployment. Morocco’s stimulus options look “more difficult and complex,” Larabi Jaidi, a member of the central bank’s policy board, told local media.

Mauritius, Sept. 23

  • Repurchase rate: 1.85%
  • Inflation rate: 1.5% (August)

The Mauritian central bank will probably hold its key rate at a record low even as inflation remains benign.

While the MPC will weigh the need for further cuts to shore up an economy expected to contract by 13% this year, recent comments from policymakers about the country being in a better shape should see it vote for an unchanged stance, said Eric Ng, an economist and director of the Port Louis-based PluriConseil.

Egypt, Sept. 24

  • Deposit rate: 9.25%
  • Inflation rate: 3.4% (August, urban)

Real High

Egypt's inflation-adjusted interest rate is the highest in the world

Source: Bloomberg

After cutting by 450 basis points in 2019 and another 300 in a mid-March emergency session, Egypt’s central bank will likely hold even as inflation is at its lowest in nearly a year.

The bank is “happy to keep yields elevated to keep attracting foreign inflows” and is expecting a pickup in inflation later in 2020, says Mohamed Abu Basha, head of macroeconomic research at Cairo-based EFG Hermes. While the pandemic cut into some of Egypt’s main sources of hard currency, such as tourism and remittances, and spurred capital outflows from March to May, investors began returning in June after the country secured financing from the International Monetary Fund.

Angola, Sept. 28

  • BNA rate: 15.5%
  • Inflation: 22.81% (August, Luanda)

Angola’s central bank hasn’t cut its policy rate this year and is unlikely to do so, even as the economy continues to face a triple shock from the virus, the oil-price drop and a reduction in crude output to meet its OPEC+ commitments.

While the MPC should focus on fighting inflation that is at the highest level in more than two years, the benchmark rate is unlikely to go up, said Carlo Rosado de Carvalho, an economist at Luanda’s Catholic University of Angola. Consumer-price growth has been fueled by the kwanza’s 23% decline against the dollar this year.

Ghana, Sept. 28

  • Policy rate: 14.5%
  • Inflation: 10.5% (August)

Ghana’s central bank will probably keep its key rate at an eight-year low for a third consecutive meeting as inflation remained above target in August.

“The elevated liquidity injection and support for the government budget still remains a risk to inflation,” said Courage Martey, economist at Accra’s Databank Group. “This will mean that monetary policy cannot be bullish in terms of cutting rates to support growth.”

Kenya, Sept. 29

  • Central bank rate: 7%
  • Inflation: 4.4% (August)

Kenyan policymakers have room to cut by 100 basis points as the country moves toward a full re-opening of its economy, according to Ken Gichinga, chief economist at Nairobi’s Mentoria Economics.

“With the easing measures, the MPC can now apply an accommodative stance to pursue growth,” he said. Virus restrictions dulled the impact of rapid-fire cuts earlier this year, resulting in high liquidity but little monetary circulation. Kenya’s pricing mis-allocation, where government securities offer higher yield than the real economy, has crowded out private-sector lending, Gichinga said.

Tunisia, date to be confirmed

  • Central bank rate: 6.75%
  • Inflation: 5.4% (August)

Tunisia’s first rate decision since July is also its first under a new government, which is under pressure to take tough decisions to turn around an economy that was struggling long before the coronavirus hit.

While the tourism- and agriculture-led economy would benefit from more stimulus, the central bank will probably hold the benchmark rate at 6.75% until there’s clarity about new Prime Minister Hichem Mechichi’s policies, according to Moez Joudi, a local economic analyst.

Seychelles, date to be confirmed

  • Monetary policy rate: 3%
  • Inflation: 1.2% (August)

After two successive cuts totaling 200 basis points this year, the key rate in the Seychelles is now the lowest since the Indian Ocean archipelago introduced the monetary-policy mechanism in December 2018. Yields on 91-day and 364-day treasury bills suggest the bank will leave the rate unchanged.

What Bloomberg’s Economist Says...

“Major central banks in sub-Saharan Africa are likely to hold rates at their next meetings as headline inflation remains above target as a result of higher food prices and currency weakening. However, in South Africa, we see space for a further 25 basis point interest-rate cut as both GDP and inflation outcomes have undershot the Reserve Bank’s expectations.”
-- Boingotlo Gasealahwe, Africa economist
Click here for the full research

— With assistance by Ruth Olurounbi, Kamlesh Bhuckory, Mirette Magdy, Candido Mendes, Ekow Dontoh, David Herbling, Simbarashe Gumbo, Souhail Karam, and Jihen Laghmari


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