Several African central banks are expected to maintain relatively high interest rates as policymakers respond to renewed inflationary pressures caused by rising energy and food prices.
A report by Bloomberg published on Monday, September 21, said central banks from South Africa to Egypt are preparing to keep borrowing costs elevated for longer as they seek to protect their economies from external shocks and currency pressures.
According to the report, 11 African central banks are scheduled to announce interest-rate decisions over the next two weeks. Seven are expected to leave their rates unchanged, three are expected to raise rates, while one is expected to cut its rate.
The latest situation is being linked partly to higher global energy prices following renewed conflict in the Middle East. Rising oil, diesel and fertiliser prices have increased concerns about inflation across several African economies.
Brent crude oil has moved above $100 per barrel, compared with an average of about $85 per barrel when many African central banks last considered their monetary-policy decisions.
The increase in energy costs could affect transportation, manufacturing, electricity generation and food production, putting additional pressure on consumer prices.
Food prices are also a major concern for African policymakers because food represents a significant portion of consumer spending in many countries on the continent.
Angelika Goliger, Africa chief economist at EY, said Africa’s monetary-policy cycle was becoming increasingly uneven. She noted that while falling inflation had created room for rate cuts in some countries, renewed energy and food-price pressures were encouraging central banks to remain cautious.
Nigeria is among the countries preparing for a monetary-policy decision this week. The Central Bank of Nigeria’s Monetary Policy Committee is scheduled to meet on Tuesday.
The Bloomberg report said Nigeria’s policy rate was expected to remain at 26.5 per cent for a third consecutive meeting, with recent fuel-price increases creating concerns that inflation could come under renewed pressure.
Morocco’s central bank is also expected to maintain its policy rate at 2.25 per cent as officials monitor the effects of higher fuel prices and changing food-price conditions.
In Egypt, inflation and exposure to energy shocks are expected to influence the central bank’s upcoming decision. The Central Bank of Egypt is scheduled to announce its decision on Thursday.
South Africa is also facing increased pressure ahead of its monetary-policy meeting on Wednesday.
Reuters reported that the South African rand was broadly stable on Monday as investors waited for August inflation data and the South African Reserve Bank’s interest-rate decision.
The country’s headline inflation rate fell to 4.3 per cent year-on-year in July, but investors are watching whether higher oil prices could create renewed inflationary pressure.
Some analysts now expect the South African Reserve Bank to increase its policy rate. Morgan Stanley, for example, changed its forecast and expects a 25-basis-point increase to 7.25 per cent, citing higher oil prices and the risk that inflation could remain above the central bank’s target for longer.
Other African economies are also preparing for possible pressure from higher global energy prices.
Ghana, Kenya, Mozambique and Tanzania are among the countries whose policymakers are expected to assess the impact of energy prices and other external risks before deciding whether to change interest rates.
For businesses, higher interest rates can increase the cost of borrowing and make financing expansion more expensive. However, central banks use higher rates as one of the tools available to control inflation and manage pressure on their currencies.
African economies are also dealing with global financial conditions. Higher US interest rates can affect capital flows into emerging markets and put pressure on local currencies.
The Bloomberg report said African policymakers are therefore watching exchange-rate movements, capital outflows and imported inflation alongside domestic price pressures.
The coming weeks will provide further indications of how African central banks are responding to the changing global economic environment.
While some countries may still have room to reduce interest rates where inflation is falling, renewed energy and food-price pressures could slow the pace of monetary easing in several economies.
For consumers and businesses across Africa, the decisions will be important because interest rates influence borrowing costs, investment, currency stability and the prices of goods and services.
The latest developments show that African monetary authorities are balancing the need to support economic activity with efforts to prevent new external shocks from becoming entrenched inflation.
