Interest rates will be higher for longer

Lesetja Kganyago

African central banks due to decide on interest rates in the next three weeks are set to keep monetary policy tighter for longer to temper stubborn inflation.

After acting aggressively for more than a year, officials in Nigeria and South Africa may increase borrowing costs, while those in Kenya and Mozambique are likely to stand pat. Ghana was viewed as a toss-up between hike and hold.

The monetary policy committees’ deliberations will probably centre around the impact higher oil prices, weather effects and the greenback’s recent weakness will have on inflation. The US currency fell after signs of cooling inflation bolstered bets that the Federal Reserve will soon halt its own muscular tightening campaign.

A weaker dollar could ease pressure on African currencies, making import bills and some international debt repayments less costly.

South Africa, July 20

  • Repurchase rate: 8.25%
  • Inflation rate: 6.3% (May)
  • Inflation target: 3%-6%

South African policymakers, nearing the end of their steepest phase of monetary tightening since 2006, will probably raise the benchmark for an 11th successive meeting to anchor inflation expectations close to the 4.5% midpoint of the target range.

Inflation expectations rose in the second quarter and were above the South African Reserve Bank’s average price growth forecasts of 6.2% for this year, 5.1% for next and 4.5% in 2025.

A rate hike may not be strictly necessary because of a stronger rand, easing inflation and a significant deceleration in administered prices since the central bank last met in May.

But various factors could persuade Governor Lesetja Kganyago and his colleagues to deliver a final 25 basis-point increase, Barclays Bank Plc’s Economist Michael Kafe said in a note.

They include higher inflation expectations and rising oil prices. Another influence is the historically tight spread between South Africa’s repo rate and the US Fed Funds rate at a time when the country’s current account is in a deficit, he said.

Of 27 economists surveyed by Bloomberg, a clear majority predict a quarter-point increase, with the rest expecting no change. Market pricing shows traders are betting on a 44% chance of such a hike.

Eswatini and Lesotho, whose currencies are pegged to South Africa’s rand, may match the Reserve Bank’s move by month-end.

Ghana, July 24

  • Policy rate: 29.5%
  • Inflation rate: 42.5% (June)
  • Inflation target: 8% +/- 2 ppts

After standing pat in May on expectations that a stable cedi and adhering to the conditions of a $3 billion International Monetary Fund bailout clinched that month would help subdue inflation, views were split on whether Ghana’s MPC would resume monetary tightening.

Ghana’s Inflation Rate Climbed in the Last Two Months | The unexpected rise has analysts split on what its central bank will do next
Economists in a Bloomberg poll were divided two versus two between a hike and a hold, with those expecting action seeing price pressures forcing the central bank’s hand.

Economists at Absa Bank, however, said that despite the risk of a hike, they are maintaining their view for no change in policy.

The IMF’s Managing Director Kristalina Georgieva said in a statement when the bailout was sealed that “the Bank of Ghana will continue tightening monetary policy until inflation is on a firmly declining path.”

Nigeria, July 25

  • Policy rate: 18.5%
  • Inflation rate: 22.8% (June)
  • Inflation target: 6%-9%

Nigeria’s rate-setters, in their first meeting to be presided over by Folashodun Shonubi, who has been acting as governor since Godwin Emefiele was suspended last month, are poised to extend their longest phase of monetary tightening to tame inflation.

Recent price triggers from the removal of costly fuel subsidies, currency pressure from the unification of the exchange rate, and a possible rise in electricity tariffs will likely keep inflation elevated near 18-year highs, CSL Stockbrokers analysts, including Gloria Fadipe and Sunmisola Ikoli-Oluwo said in a note.

“We do not believe the monetary authorities will be willing to raise the policy rate much higher than current levels given the new administration’s perceived bias for low-interest rates,” the analysts wrote. “Going into the second half, we forecast at most a 150 basis-point rise in rates till the end of the year.”

Egypt, Aug. 3

  • Deposit rate: 18.25%
  • Inflation rate: 35.7% (June)
  • Inflation target: 7% +/- 2 ppt

A surge in Egyptian inflation to a record in June has made discussions over a rate increase a shade likelier when policymakers meet next month.

But it’s the prospects for Egypt’s currency that will probably dictate the timing of resuming a monetary tightening cycle that’s been on pause since a large rate hike in March.

After recently announcing state-asset sales worth $1.9 billion and plans to unlock more financing from abroad, authorities may finally be getting on track to secure the cash they need to manage another devaluation — a decision likely to be accompanied by a decision to lift rates.

Egypt’s central bank already allowed the pound to lose half its value following three devaluations while raising rates by 10 percentage points since March 2022.

Governor Hassan Abdalla earlier this year indicated higher rates could now do little to contain price growth that he described as stoked mainly by supply issues.

“Despite keeping rates on hold over the past couple of months, we still expect another 300 basis points of tightening in the second half, as inflation pressures remain uncomfortably high,” Deutsche Bank AG analysts, including Christian Wietoska, said in a July report.


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