Major African central banks are maintaining a tightening stance on borrowing costs, with others raising interest rates to tackle high inflation and support their currencies.
The Monetary Policy Committee of the South African Reserve Bank and The Central Bank of Lesotho both recently raised their interest rates by 25 basis points (bps) to 7.25%.
South Africa’s smaller hike suggests the bank could be coming to the end of a tightening cycle that started in November 2021.
“This is much smaller than the successive rate adjustments of 75 bps taken in 2022,” said Jacques Nel, Head of Macro at Oxford Economics Africa.
“A few more African central banks have signalled that looser monetary policy might be on the horizon,” he added.
The Central Bank of Nigeria (CBN) also hiked its policy rate, albeit by a whooping margin of 100 bps – to 17.5 per cent, even as the country’s inflation figure dipped marginally to 21.34% in December from 21.47% in November.
“Our immediate read on this is that the CBN is showing more anti-inflation resolve, and preparing the way – perhaps – for an eventual FX policy liberalisation that will require a reset to higher market rates,” Razia Khan, Standard Chartered managing director and chief economist, Africa and Middle East told Reuters.
The Bank of Ghana also raised its policy rate by 100 basis points on January 30 to 28%. The January move is the seventh hike since November 2021, an action meant to restrain inflationary pressure and support macroeconomic adjustments.
However, central banks in Kenya, Tunisia and Tanzania have retained their base lending rates.
Kenya retained its rate at 8.75 per cent after inflation in the East African economy eased to 9.1 per cent in December from 9.5 per cent in November, mainly due to falling food prices.
“The Committee noted that the impact of the further tightening of monetary policy in November 2022 to anchor inflationary pressures were still transmitting in the economy,” said Kenya’s Central Bank Governor, Patrick Njoroge.
“Additionally, the MPC noted that this action will be complemented by the recently announced Government measures to allow limited duty-free imports on specific food items, which are expected to moderate prices and further ease domestic inflationary pressures,” CBK said in a statement.
Tunisian regulator held its policy rate at 8% after a 75 bps rise in December 2022, while Tanzania’s, which has experienced the lowest inflation in the East African Community and the Southern African Development Community, sustained its benchmark interest rate at 5 per cent- where it has been since the outbreak of COVID-19.
Egypt’s central bank kept interest rates unchanged, maintaining the deposit rate at 16.25% and the lending rate at 17.25%. Malawi also retained its policy rate at 18 per cent, citing an improved economic outlook and moderating inflation.
“These signs of progress in reducing inflationary pressures amidst continued strength in labor markets have offered reason to believe that policymakers may have succeeded in taming inflation with little cost to economic growth, a so-called soft landing,” said the International Monetary Fund in its latest weekly analysis.
The African Development Bank has projected Africa’s economy will grow faster than the rest of the world in the coming two years at 4%, compared to global averages of 2.7% in 2023 and 3.2% in 2024.
According to Statista, Sudan has the highest Inflation rate in Africa at about 245%, linked to a long-running economic crisis and political instability.
With a long history of hyperinflation, Zimbabwe has the second-highest rate at 86.7%, followed by Ethiopia at 34.5%. BY DAILY NATION