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Most African central banks due to decide on interest rates in the next two weeks are set to keep them on hold as decades-high inflation eases after more than a year of tightening.
Those such as in Egypt, Kenya and Mozambique may also factor into their decisions a drop in global commodity prices and the unwinding of supply constraints. Expectations that the US Federal Reserve may pause its most aggressive hiking cycle since the 1980s, which could weaken the dollar and boost their currencies, will be another consideration.
Others like South Africa and Nigeria, both of which are facing domestic challenges that may keep inflation elevated, are poised to hike.
The Bank of Zambia’s monetary policy committee yesterday raised its key interest rate for a second time this year by 25 basis points to 9.50 percent from 9.25 percent. This decision was arrived to contain double-digit inflation and support its currency, which has come under renewed pressure from slow progress in debt-restructuring talks.
The southern African nation has been struggling to seal a deal to revamp US$12,8 billion in external loans since becoming Africa’s first pandemic-era defaulter in November 2020. Still, the maize harvest currently underway could help temper prices, reducing some pressure on the central bank to raise rates.
A temporary slowdown in inflation may give Egypt’s MPC room to pause, especially after Governor Hassan Abdalla signalled higher interest rates are doing little to cool prices.
The central bank “is likely to remain data-led, and will see declining global commodity prices and a reduction in domestic inflation as supportive of their current monetary stance,” said Farouk Soussa, an economist at Goldman Sachs Group Inc.
The monetary authority sees inflationary pressures stoked mainly by supply issues, “reducing the rationale for a further hike in the medium term,” he said.– Bloomberg
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