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Inflation Headed Wrong Way for African Rate-Cut Prospects - BLOOMBERG

NOVEMBER 20, 2023

BY  Richard Annerquaye AbbeyBloomberg News

, Source: Bloomberg surveys

(Bloomberg) -- Sub-Saharan Africa’s central banks unlike their emerging market peers in Latin America will likely have to wait a little longer to reduce interest rates, with economists raising their inflation forecasts for many of the region’s key economies in the coming months.

Countries including Ghana, Nigeria, Ethiopia and Zambia will see higher inflation than previously forecast, according to a Bloomberg News survey. The forecasts for South Africa and Ivory Coast were unchanged.

“Depreciating currencies in sub-Saharan Africa due to tight FX liquidity imply inflation will remain elevated for a protracted period,” said Yvonne Mhango, Africa Economist at Bloomberg Economics. “Central banks in this region will be forced to keep interest rates higher for longer to tame inflation.” That’s in contrast to Latin American countries, such as Brazil, Chile and Peru, which have started cutting rates with disinflation set to continue. 

Nigeria, Africa’s largest economy, had the most notable forecast change for average inflation in the coming year, with the projection raised to 24.7% from 20% in the previous survey conducted in August. The West African nation’s inflation raced to an 18-year-high as a weaker naira spurred food prices.

The Central Bank of Nigeria’s monetary policy committee, which was scheduled to give its rate decision on Tuesday before postponing the meeting, has already raised borrowing costs by 725 basis points since March 2022 to 18.75%.

Read More: Key African Economies Set to Deviate From Global Rates Path (1)

In Ghana, inflation slowed last month to 35.2% — a 14-month low — easing pressure on the central bank to keep borrowing costs unchanged. The central bank held its benchmark rate at 30% during its September meeting, halting its steepest-ever hiking cycle.

--With assistance from Sarina Yoo.

(Updates with postponement of Nigeria MPC meeting in paragraph five and Latin American comparison in paragraph one)


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