How SA, other Africa central banks could move on rates

Doya - Central banks in five major sub-Saharan African economies are scheduled to announce their interest-rate decisions in the next three weeks, including Nigeria if lawmakers get around to approving Monetary Policy Committee nominees.

Slower inflation and more stable exchange rates have built a case for looser monetary policy in Kenya, Ghana, South Africa and Nigeria.

Economic growth near 1% in South Africa and Nigeria, which make up half of the continent’s gross domestic product, adds to the case for monetary-policy stimulus and global expansion and risk appetite have helped boost the region’s foreign reserves, according to Razia Khan, head of macroeconomic research at Standard Chartered Bank.

“This benign environment favours the easing cycle in sub-Saharan Africa, where economies are still reacting to earlier growth weakness,” she said.

These are some of the considerations for the region’s central bankers.

Kenya’s rate-caps dilemma

While price growth has been inside the central bank’s 2.5% to 7.5% target band since September, only two of the eight economists in a Bloomberg survey predict a rate cut when the MPC announces its decision on Monday afternoon.

That’s because it’s still unclear when and whether the government will remove the cap on commercial lending rates that many, including the central bank, have said has rendered monetary policy largely ineffective, according to NKC African Economics analyst Jacques Nel.

Will they or won’t they meet in Nigeria?

Easing in Nigeria, where the policy rate has been at a record 14% since July 2016, might take a little longer, and not just because inflation remains above the central bank’s target of 6% to 9%.

The MPC in Africa’s most populous nation doesn’t have a quorum to meet and set rates, after Senate lawmakers initially refused to approve President Muhammadu Buhari’s nominees to the committee. The MPC missed its January meeting, and delayed the one that was scheduled for Monday and Tuesday until April 3 and 4. Lawmakers said they will screen the candidates for approval this week.

More cuts in Ghana

The inflation rate in Africa’s fastest-growing economy has almost halved from the record high it reached two years ago and the central bank has lowered its benchmark rate by 6 percentage points. While price growth still lingers above the 6% to 10% target band, it may slow further, providing impetus for the central bank to loosen policy on March 26.

Favouring the inflation outlook is “a 30% cut in electricity prices and a stable currency”, said Courage Martey, Accra-based economist at Databank Group. This “should give confidence to the MPC to resume rates cutting as early as this month,” he said.

Ramaphosa’s rand rally in South Africa

President Cyril Ramaphosa made many pledges in the run-up to his election as president of the ruling African National Congress and the country.

The result may be further cuts in the benchmark rate after inflation expectations fell as the rand strengthened 6% since he became head of the ANC in December. The currency was 0.6% weaker as R12.04 per dollar at 13:15 in Johannesburg.

While forward-rate agreements, used to speculate on borrowing costs, don’t show a full quarter-point of easing this month, seven of the nine economists in a Bloomberg survey predict a cut on March 28.

“It would be a missed opportunity if they were not to cut rates now, because there is so much positive sentiment and momentum right now in the aftermath of December,” Phoenix Kalen, a director of emerging-markets strategy at Societe Generale in London, said by phone.

What do Bloomberg economists say?

“Developments have clearly been more conducive for a rate cut in South Africa in the past few months. Still I see it as likely that MPC members will be amenable to following the line of Governor Lesetja Kganyago of seeking to reduce inflation expectations and keeping an eye on downward risks to the rand.

"In Nigeria, the continued rise in food prices in February will have been disappointing for monetary policymakers. I expect the delayed March MPC meeting to be focused on building a consensus on future policy direction with the new members on board and laying the ground for a rate cut in May,” said Mark Bohlund of Bloomberg Economics.

Angola, The outlier

Angola could be the exception to the easing trend when policy makers meet on March 29.

The nation’s central bank raised its main lending rate to 18% in December to counter inflation, which the International Monetary Fund said may be at 24% by year-end due to the weakening of the kwanza after the removal of a dollar peg in January.

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