INTERNATIONAL - After emergency meetings and aggressive interest-rate cuts to buffer their economies against the impact of the coronavirus pandemic, some central bankers in sub-Saharan African economies may follow a more measured approach when they sit down for their deliberations in the next two weeks.
While monetary policy committees in South Africa and Kenya will probably take advantage of scope to lower rates even further, those in Nigeria and Zambia may continue to buck the global trend by holding. Zambia may even mull a rate hike.
“The initial concern was the hit to economic activity and growth and cutting rates was an attempt to try and mitigate that,” said Yvonne Mhango, an economist at Rencap Securities Pty Ltd. “Going forward, the concern now is also going to be currencies.”
Here’s what central bankers in the region may do this month:
Ghana, May 15
Policy rate: 14.5%
Inflation rate: 7.8% (March)
After the Bank of Ghana cut its key rate to an eight-year low in the middle of March, analysts are split about its next move. Three of the six economists in a Bloomberg survey expect the bank to leave the rate unchanged while the rest predict more easing on Friday to boost an economy that’s forecast to grow at the slowest pace in 37 years. The median estimate is for a 25 basis-point reduction.
The central bank may also announce additional measures to prop up specific sectors of the economy, according to Patrick Asuming, a senior lecturer at the University of Ghana Business School. With excess liquidity in the market and lenders that are cautious about giving credit to the private sectors, banks need guidance on loan-to-deposit requirements and direction on the industries earmarked to spur growth, said Courage Martey, an Africa economist at Databank Group in Accra.
“Additional liquidity in the form of a rate cut will not solve the problem,” he said.
Zambia, May 20
Policy rate: 11.5%
Inflation rate: 15.7% (April)
With inflation at a 43-month high and a currency that’s lost more than a fifth of its value against the dollar this year, cutting isn’t an option for the Bank of Zambia. The MPC will decide between raising the policy rate in attempt to stabilize the economy or providing relief by leaving it unchanged.
“Increasing the rate at this time is comparable to taking out blood from a patient who has just experienced an anemic condition,” said Chibamba Kanyama, a Lusaka-based economist. “I expect the MPC to hold as a way of stimulating the economy.”
South Africa, May 21
Repurchase rate: 4.25%
Inflation rate: 4.1% (April)
South Africa’s central bank may reduce its benchmark interest rate for the fourth time this year as it seeks to support an economy that could contract as much as 16.1%.
With inflation likely to test the 3% lower bound of the Reserve Bank’s target range and risks to the growth outlook skewed to the downside, there’s scope for a reduction of a further 125 basis points this year, according to Mpho Molopyane, an economist at FirstRand Group Ltd.’s Rand Merchant Bank.
“At the moment, the Reserve Bank is not worried about inflation,” she said. “We’ve seen other emerging markets cutting interest rates quite aggressively, taking real rates to zero or negative territory in some cases. The Reserve Bank definitely has scope to take the real rate to zero.”
While RMB’s baseline view is for a 50 basis-point reduction this month, there is an increasing likelihood the MPC could move by a full percentage point after economic indicators showed a nationwide lockdown brought activity close to a standstill in April, and with no indication when restrictions could be eased further, she said.
What Bloomberg’s Economist Says
“We think the SARB will cut rates by a further 25 basis points due to a weaker growth and inflation outlook. Despite partial easing, the economy remains under lockdown and stimulus deployment remains slow. Oil prices also remain well below the SARB’s forecast of $42/bbl for the year and Stats SA Essential Products-CPI shows muted price pressures. Unlike the rest of the world, interest rates in South Africa remain well above zero and the repo remains the main monetary policy tool.” - Boingotlo Gasealahwe, Africa economist.
Nigeria, May 26
Policy rate: 13.5%
Inflation rate: 12.3% (March)
Central bankers in Africa’s biggest economy will continue to hold the key rate as it grapples with a marked slowdown due to the pandemic and the slump in the price of oil that’s the nation’s top export. The plunge in crude prices has forced it to devalue the naira, while inflation been above the target band for almost five years.
“The Central Bank of Nigeria has demonstrated its resolve to ride out this crisis and see if any of the current shifts in global economic behavior become more permanent,” said Ikemesit Effiong, the Lagos-based head of research at SBM Intelligence. It’s unlikely that the MPC “will rock the boat” because the fundamentals of the West African economy are the same as before the crises, he said.
Kenya (date to be confirmed)
Central bank rate: 7%
Inflation rate: 5.6% (April)
Kenya’s MPC is expected to cut the benchmark interest rate for a fifth straight meeting when they gather during the last week of the month. That’s because the East African economy is operating below its potential due to virus-related shocks, said Jibran Qureishi, Stanbic Holdings Plc’s economist for East Africa.
While the central bank rate is at a nine-year low of 7%, it could be cut to as little as 5% by the end of the year, according to Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank.
Mauritius (date to be confirmed)
Repurchase rate: 1.85%
Inflation rate: 4.2% (April)
Policy makers in Mauritius slashed the repo rate to 1.85% -- the lowest since the introduction of this monetary policy mechanism -- at an unscheduled meeting last month, after forecasts showed the nation’s economy would contract for the first time in four decades.
Given the cut was an attempt to stimulate activity and lending on an island reliant on income from tourism and exports, and with consumer-price growth at an acceptable level, the MPC will vote to keep the rate unchanged, according to economist Takesh Luckho.
“A further cut in the repurchase rate could be used as a joker card in the near future, depending on the economic recovery,” he said by phone.