African central banks easing rate hikes

After tightening monetary policy sharply in 2022, most African central banks are poised to slow the pace of interest-rate hikes in coming weeks as inflation shows signs of peaking or moderating.

Monetary policy committees in Nigeria, South Africa and Kenya will likely proceed more gingerly in raising borrowing costs, while Mozambique’s is forecast to stand pat as it assesses the impact of previous increases.

Angola will probably remain an outlier and cut rates.

The decisions may take into account how the reopening of the Chinese economy will impact on inflation.

They will also need to consider the likelihood of a rebound in the dollar if investors flood back into US assets because of fears of a global recession and the fallout from Russia’s extended war in Ukraine.

The greenback has retreated since November, spurred by expectations that the Federal Reserve will temper its rate hikes in 2023 after US annual inflation cooled for a sixth straight month in December.

The weaker dollar has eased pressure on African currencies, making import bills and some international debt repayments less costly.

Angola, Jan. 20

  • BNA rate: 19.5%
  • Inflation rate: 13.9% (Dec.)

Angola’s central bank is set to become the first globally to lower interest rates this year. A downswing in inflation since February is forecast to continue, with a rally in the kwanza for most of 2022 expected to keep prices in check.

The MPC will also cut because the December inflation rate was well below its initial target of 18% and revised forecast of 16%, while the currency has been stable since mid-November after weakening briefly against the dollar, said Wilson Chimoco, an economist at Universidade Catolica de Angola.

Nigeria, Jan. 24

  • Policy rate: 16.5%
  • Inflation rate: 21.3% (Dec.)
  • Inflation target: 6%-9%

Having lifted its benchmark rate by five percentage points since May, the Central Bank of Nigeria is expected to slow the pace of tightening in what could be the last increase this cycle after inflation softened in December.

“Although the recently released inflation data showed that the headline inflation eased for the first time since January 2022, it is still significantly above the CBN’s 12.5% growth-aiding threshold,” said Abdulazeez Kuranga, a senior analyst at Lagos-based Cordros Capital Ltd.

Mozambique, Jan. 25

  • Mimo interbank rate: 17.25%
  • Inflation rate: 10.9% (Dec.)

Rate setters in Mozambique will probably leave the key rate, known by the Portuguese acronym Mimo, unchanged for a second straight meeting.

While inflation is still in double digits, the rate has fallen since September and a government decision not to pay public workers a 13th check in December may help price growth cool further, according to Celeste Banze, a Maputo-based economist and independent consultant.

The state budget for 2023 also envisages an accommodative monetary policy, she said.

South Africa, Jan. 26

  • Repurchase rate: 7%
  • Inflation rate: 7.2% (Dec.)
  • Inflation target: 3%-6%

After front-loading its fight against the worst global inflation shock in a generation, the South African Reserve Bank will probably slow the pace of interest-rate hikes following a slowdown in headline and core inflation in December.

The benchmark rate at 7% is also higher than the year-end 2025 level that the central bank’s quarterly projection model – which the MPC uses as a guide – suggests it should be, supporting the case for less aggressive tightening.

Absa Group economists, including Peter Worthington, trimmed their January rate-hike estimate to 25 basis points from 50 basis points.

The decision will be “finely balanced”, and it wouldn’t be surprising if the vote among panellists is split for an eighth-straight meeting, Worthington said.

Forward-rate agreements used to speculate on borrowing costs show traders are pricing in an 80% chance of a 25 basis-point increase.

Higher inflation expectations and mounting price pressures, including rising electricity costs, will probably see Governor Lesetja Kganyago maintain a hawkish stance as he seeks to entrench inflation expectations close to the 4.5% midpoint of the target range.

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

Ghana, Jan. 30

  • Policy rate: 27%
  • Inflation rate: 54.1% (Dec.)
  • Inflation target: 8% +/- 2 ppts

A higher-than-expected leap in annual inflation in the last two months of 2022 and renewed weakness in the cedi against the dollar will likely see Ghana’s monetary authority jack up its main rate for a seventh time since November 2021, adding to 13.5 percentage points of increases.

“Ghana’s inflation has continued to increase and so we see a 200 basis points hike in January and a further 200 basis points in March 2023 to a peak of 31%,” said Razia Khan, head of research for Africa and the Middle East at Standard Chartered Bank.

The cedi retreated after a brief respite in early December due to Ghana suspending interest payments on its external debt on Dec. 19.

The move caught bondholders by surprise ahead of restructuring talks aimed at unlocking an International Monetary Fund bailout it’s seeking to address precarious public finances and support the cedi.

“The risk now is that if the debt restructuring takes even longer to conclude, then obviously the currency comes under pressure and the bank of Ghana may have to tighten further,” Khan said.

Kenya, Jan. 30

  • Central bank rate: 8.75%
  • Inflation rate: 9.1% (Dec.)
  • Inflation target: 5% +/- 2.5 ppts

Kenyan policymakers are poised to slow the pace of rate hikes after price growth eased for two straight months.

They are expected to increase the benchmark by a quarter-percentage point to help bring inflation back within target and shore up the local currency that’s depreciated almost 9% against the dollar since the start of last year, said Eric Musau, head of research at Nairobi-based Standard Investment Bank.

Egypt, Feb. 2

  • Deposit rate: 16.25%
  • Inflation rate: 21.3% (Dec.)
  • Inflation target: 7% +/- 2 ppt

With inflation running at a five-year high even before Egypt’s third major currency devaluation in less than a year, another interest-rate hike might seem like a done deal for the Arab nation.

But the decision isn’t so simple, according to Farouk Soussa, an economist at Goldman Sachs Group.

With Egypt’s months-long foreign-currency crunch gradually easing, modest capital inflows from overseas may “give the central bank some breathing space,” letting it hold tight to assess a recent spate of monetary tightening, including a jumbo 300-basis point hike in December, he said.


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