Big challenges loom for Africa''s central banks
Political pressure up as growth eludes
Ghana, Kenya, Nigeria and South Africa are set to announce interest-rate decisions this week in an environment marked by accelerating price growth and an economic slump in some countries and attempts by politicians to prescribe policy in others. While Nigeria’s central bank will probably take more aggressive action, South Africa, Kenya and Ghana are set to keep rates on hold, according to analysts surveyed by Bloomberg.
The contrasting approaches underscore the difficult policy choices facing African central banks as a slump in commodity prices and sluggish global demand continue to weigh on raw material exporters, like South Africa and Nigeria, the continent’s two largest economies. Political pressure is also mounting as Ghana and Kenya prepare for elections in the next 12 months and infighting in South Africa’s government and ruling party escalates.
“Internal dynamics, I think, will influence the monetary policy direction more so than what’s happening externally,” Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital in Johannesburg, said by phone. “Currency movements will be significant.”
Under normal circumstances the timing and direction of the US Federal Reserve’s policy decisions would weigh heavily on the decision-making of central banks in countries dependent on foreign capital inflows and imports. Domestic factors could, however, play a greater role this week.
December election
While inflation in Ghana, the world’s second biggest cocoa producer, quickened to 16.9% in August, the rate has come down from the 19.2% record in March. The pledge by the government of President John Dramani Mahama, who will contest for a second term in office in a December vote, to increase public-sector salaries by 12.5% from January is likely to make the Bank of Ghana hesitant about monetary easing, Mark Bohlund, an economist at Bloomberg Intelligence in London, said in a note. Four of the six economists in a Bloomberg survey said borrowing costs will stay on hold on Monday.
“Despite the somewhat higher inflation print for August, we expect an unchanged policy stance as inflation is on a downward trajectory,” Ridle Markus, an Africa strategist at Barclays’ unit in Johannesburg, said in an emailed response to questions. “The relative stability in the exchange rate may be welcomed by the MPC though it will still be concerned about the impact a US rate hike may have on the cedi.”
Politics could weigh on the Kenyan central bank’s decision-making on Tuesday even as the shilling has been relatively stable against the dollar this year, helping to keep inflation inside the bank’s 2.5% to 7.5% target band. President Uhuru Kenyatta, who will run for a second term in August elections, has signed a law capping commercial lending rates.
The new law is a “complicating factor”, Gareth Brickman , a market analyst at ETM Analytics in Stamford, Connecticut, said in an e-mailed response to questions. It “will naturally give the CBK reason to pause before acting on policy”.
BLOOMBERG
The contrasting approaches underscore the difficult policy choices facing African central banks as a slump in commodity prices and sluggish global demand continue to weigh on raw material exporters, like South Africa and Nigeria, the continent’s two largest economies. Political pressure is also mounting as Ghana and Kenya prepare for elections in the next 12 months and infighting in South Africa’s government and ruling party escalates.
“Internal dynamics, I think, will influence the monetary policy direction more so than what’s happening externally,” Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital in Johannesburg, said by phone. “Currency movements will be significant.”
Under normal circumstances the timing and direction of the US Federal Reserve’s policy decisions would weigh heavily on the decision-making of central banks in countries dependent on foreign capital inflows and imports. Domestic factors could, however, play a greater role this week.
December election
While inflation in Ghana, the world’s second biggest cocoa producer, quickened to 16.9% in August, the rate has come down from the 19.2% record in March. The pledge by the government of President John Dramani Mahama, who will contest for a second term in office in a December vote, to increase public-sector salaries by 12.5% from January is likely to make the Bank of Ghana hesitant about monetary easing, Mark Bohlund, an economist at Bloomberg Intelligence in London, said in a note. Four of the six economists in a Bloomberg survey said borrowing costs will stay on hold on Monday.
“Despite the somewhat higher inflation print for August, we expect an unchanged policy stance as inflation is on a downward trajectory,” Ridle Markus, an Africa strategist at Barclays’ unit in Johannesburg, said in an emailed response to questions. “The relative stability in the exchange rate may be welcomed by the MPC though it will still be concerned about the impact a US rate hike may have on the cedi.”
Politics could weigh on the Kenyan central bank’s decision-making on Tuesday even as the shilling has been relatively stable against the dollar this year, helping to keep inflation inside the bank’s 2.5% to 7.5% target band. President Uhuru Kenyatta, who will run for a second term in August elections, has signed a law capping commercial lending rates.
The new law is a “complicating factor”, Gareth Brickman , a market analyst at ETM Analytics in Stamford, Connecticut, said in an e-mailed response to questions. It “will naturally give the CBK reason to pause before acting on policy”.
BLOOMBERG
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