(Bloomberg) — Central banks in five African nations will likely raise interest rates in the coming weeks to tame inflation pressures that threaten to become entrenched. Those in another seven are expected to keep borrowing costs on hold as they assess the impact of supply shocks caused by Russia’s war on Ukraine.
The conflict has raised fears that the world economy may be heading for a re-run of 1970s-style stagflation, as soaring prices of commodities from wheat to oil drive up living costs globally. The uncertainty tied to the war, coupled with the potential impact on emerging markets from the U.S. Federal Reserve raising interest rates for the first time since 2018 , will be the focal point of African monetary authorities’ interest-rate deliberations.
Rate-setters who foresee a sustained buildup in inflationary pressures will probably be more pre-emptive in raising rates, said Stuart Culverhouse, head of sovereign and fixed-income research at Tellimer Research. The Bank of Ghana is expected to raise its key interest rate to stem a decline in the cedi, which is trading close to a record low against the dollar, and rein in broad-based inflation that’s near a six-year high .
The central bank is announcing its decision a week ahead of schedule, “an acknowledgment that things have gone a notch beyond expectations and would require a quickened process to arrest the surge in inflation,” said Courage Boti, an economist at Accra’s Databank Group.
He and Patrick Asuming, a senior lecturer at the University of Ghana Business School, expect the bank to raise rates by as much as 200 basis points. That would make the West African nation’s cedi-denominated assets more attractive to investors after the Fed’s decision to start hiking rates this week. Steady inflation in Africa’s largest economy will likely see the Central Bank of Nigeria leave rates unchanged as it continues to focus on spurring economic growth while monitoring the impact of geopolitical developments on inflation. The economy grew 3.4% last year , after contracting 1.92% in 2020, and Governor Godwin Emefiele has said he will only raise rates once it’s on a sustainable recovery path.
“Economic growth in Nigeria is still at suboptimal levels and the CBN is unlikely to buck their trend of undermining consumer-price pressures to achieve their growth objectives,” said Mosope Arubayi, an economist at IC Group in Lagos. “I see them staying pat on monetary policy tools.”
A survey of four economists conducted by […]