South Africa’s interest rates to be higher for longer

Lesetja Kganyago

In what will be a marathon month for interest-rate decisions in Africa, its biggest economies are set to keep interest rates higher for longer.

Those with acute currency weakness and brisk inflation, such as Nigeria and Angola, are poised to raise rates. Egypt may do so at its upcoming meeting or early next year.

That contrasts with major advanced economies, where traders are betting the most aggressive tightening cycle in a generation is now over.

Other countries, including South Africa, Morocco, Kenya and Ghana, are seen maintaining rates at current levels to assess risks to inflation.   

South Africa, 23 November

  • Repurchase rate: 8.25%
  • Inflation rate: 5.4% (Sept.)
  • Inflation target: 3%-6%

Inflation is anticipated to start easing toward the midpoint of the South African Reserve Bank’s 3% to 6% target range, which is where it prefers to anchor expectations.

Against that outlook, economists are in consensus that the MPC will close off the year, leaving the benchmark rate unchanged for a third straight meeting while delivering a hawkish message. Most only anticipate rate cuts from the second quarter of next year.

Supporting its decision to hold are fresh developments, including oil prices erasing their sharp rise from late August and the Federal Reserve appearing to be done with rate hikes. That bodes well for the rand, Tatonga Rusike, an economist at Bank of America, said in a note to clients. 

Nigeria, 21 November

  • Policy rate: 18.75%
  • Inflation rate: 27.3% (Oct.)
  • Inflation target: 6%-9%

The Central Bank of Nigeria’s monetary policy committee, in its first meeting to be chaired by Governor Olayemi Cardoso, is forecast to hike interest rates to temper inflation that may reach 30% in the coming months, according to Barclays Plc.

Inflation has been kept elevated by a 40% plunge in the naira against the dollar since the easing of foreign exchange controls in mid-June and the removal of fuel subsidies. 

“To help support the currency and signal commitment to the authorities’ verbal promise to preserve what remains of the CBN’s price stability mandate,” decisive action is needed, Barclays analysts led by Michael Kafe said in a quarterly research report.

“We believe that an increase of some 325 basis points at this meeting, together with concrete steps to address the challenges in the FX markets, would help restore credibility,” followed by further tightening in the months ahead, they said.

Of the 12 economists polled by Bloomberg, one predicts the central bank to hold rates, and the rest expect an increase, with projections ranging from between 25 basis points to 325 basis points.   

Angola, 21 November

  • BNA rate: 17%
  • Inflation rate: 16.6% (Oct.)

While policymakers in Africa’s second-largest oil producer have been reluctant to lift borrowing costs under Governor Manuel Tiago Dias, high levels of domestic public debt and quickening inflation may prompt them to do so, said Wilson Chimoco, an economist at Universidade Catolica de Angola. 

Inflation is projected to reach more than 20% next year, stoked by a reduction in fuel subsidies and a steep depreciation in the kwanza.

Deputy Governor Pedro Castro e Silva said earlier this month that the central bank will maintain a restrictive monetary policy into 2024.

Ghana, 27 November

  • Policy rate: 30%
  • Inflation rate: 35.2% (Oct.)
  • Inflation target: 8% +/- 2 ppts

Ghana’s monetary authority is likely to keep borrowing costs unchanged for a second consecutive meeting with inflation forecast to keep slowing. 

Progress on debt-restructuring talks — expected this week — to unlock a further $600 million from the International Monetary Fund under the West African nation’s $3-billion loan program should help support the currency.

Cumulative rate increases of 16.5 percentage points since November 2021 should assist in curbing inflation that the government sees cooling to 15% by the end of 2024. 

“I think they will maintain rates because there is the need for signaling and firmly anchoring inflation expectations,” said Courage Boti, an economist at Accra-based GCB Capital Ltd.

“It is the requirement under the IMF program that the monetary policy stance needs to be appropriately tight.” 

Kenya, 5 December

  • Central bank rate: 10.5%
  • Inflation rate: 6.9% (Oct.)
  • Inflation target: 5% +/- 2.5 ppts

Kenya’s policy-setting panel will probably hold the benchmark rate for a third straight meeting to monitor risks to inflation, which has remained sticky amid high fuel prices and a steep depreciation of the shilling.

“The tone of the meeting would be that the effects are transitory,” Daniel Kavishe, economist at FirstRand Ltd.’s Rand Merchant Bank, said in an emailed response to queries.

The MPC is likely to warn that it will act if inflation starts to breach the ceiling of its target band on a sustained basis.

Morocco, 19 December

  • Benchmark rate: 3%
  • Inflation rate: 4.9% (Sept.)

The Bank al-Maghrib is set to hold borrowing costs at the highest level since mid-2014 to allow the kingdom’s economy more time to absorb a tightening cycle that halved the inflation rate this year from a three-decade high.

After successive droughts, some of the kingdom’s key farming regions had abundant rainfall in recent weeks, raising hopes for bigger domestic supplies and a further easing in inflation, which is now below the regulator’s 6% target for this year. The bank expects the inflation rate to drop to 2.6% in 2024.

“Some African central banks could reduce rates in coming months, such as those in Ghana and Uganda, but I don’t expect Bank al-Maghrib to be among them,” said Mark Bohlund, senior credit research analyst at REDD Intelligence.

Rates may be lower next year, but not before the second half, he added. That’s as the government’s 2024 budget plans for the gradual dismantling of subsidies may spur price increases.

Egypt, 21 December

  • Deposit rate: 19.25%
  • Inflation rate: 35.8% (Oct.)
  • Inflation target: 7% +/- 2 ppt

Egypt’s rate decision is likely to be a toss-up between a hike and a hold. The North African country hasn’t raised borrowing costs since August, even as it battles high inflation, with the central bank likely to wait until it can enact another long-awaited currency devaluation.

That moment may be approaching. December’s meeting comes a little over a week after elections in which President Abdel-Fattah El-Sisi is all but certain to win a third term.

The authorities probably won’t give Egypt’s 105 million people another price shock before the ballot, but they may move swiftly afterwards to loosen the reins on Egypt’s pound and meet the conditions of an IMF rescue program review.

While Societe Generale SA predicts a devaluation soon after votes are tallied, analysts at Deutsche Bank AG and Morgan Stanley expect the adjustment next quarter.


Top JSE indices