To shore up their recoveries from the COVID-19 stasis, central banks in some of Africa’s largest economies will likely look beyond soaring inflation and US policy tightening and keep interest rates in the coming weeks.
Since the continent’s previous meeting, U.S. consumer prices have risen to near four-decade highs, paving the way for the Federal Reserve to raise interest rates as early as March, potentially causing a sell-off of emerging-market currencies and dollar bonds in debt-ridden countries.
Rising food and energy costs have increased price increases in Nigeria, Ghana, Angola, and Zimbabwe, which was already in double digits.
Despite this, most major central banks are expected to prioritise helping ailing economies above curbing price inflation in the coming days by keeping key interest rates steady.
Africa’s “growth rebound is a lot slower and weaker,” according to Yvonne Mhango, Renaissance Capital’s head of research for the continent.
“This suggests that central banks have to be a lot more careful when it comes to tightening,” she added.
She also warned that its countries lacked the financial means to deliver the kind of fiscal stimulus that helped established markets recover faster, such as the United States.
Borrowing costs are only projected to grow in South Africa, whose liquid capital markets leave it sensitive to central bank tightening in developed markets, and Zimbabwe, which is dealing with a 60 percent inflation rate and a sinking currency.
Monetary Policy Committee
The Bank of Ghana through its Monetary Policy Committee (MPC) is expected to announce the policy rate on January 31, 2022.
However, ahead of the conclusion of the Bank of Ghana’s 104th MPC meeting, the Institute of Economic Affairs (IEA) predicts that the benchmark interest rate would remain at 14.5 percent.
Despite rising inflation, driven by high food and fuel prices, supply bottlenecks, and upwards exchange rate pressure, Director of Research at the Institute, Dr. John Kwakye, said the Committee would not raise the rate during a round-table discussion.
“Looking at the balance of risk between inflation and growth, my judgement is that the inflation risk outweighs the growth risk at this time, and on that score, you would say that the policy rate should be adjusted upwards. However, recalling that the rate was increased by 100 basis points just two months ago, at the last meeting, the likelihood of another increase is low,” he explained.
“My expectation is that the Committee will play it safe by holding the rate as it is,” adding that this will allow the Committee some time, until its next meeting, to have a clearer picture of the inflationary trend and take a decision accordingly.