SSA Monetary Policy Response to COVID-19: at the Expense of Price Stability?

Friday, July 30, 2020/ 12:25PM / United Capital Research / Header Image Credit: Brand Spur Proshare Nigeria Pvt. Ltd. The global outbreak of the novel Coronavirus in early 2020 precipitated an economic crisis in the sub-Saharan African region as the prices of key export commodities (especially crude oil) of most countries within the region slumped, prompting a panic exit by foreign portfolio investors and creating a huge external deficit. Like their fiscal counterparts, monetary authorities across SSA have announced series of expansionary policies to cushion the impact of the pandemic on their various economies and the livelihood of their citizens. These monetary policies include but are not limited to: rate cuts, targeted liquidity support, loan restructuring, and asset purchase programs.

However, unlike the fiscal side, there seems to be more room in many SSA economies for monetary authorities to conduct countercyclical policy responses. Notably, only 7 of 46 SSA countries have an above single-digit inflation rate. While we expect the monetary authorities across the region to maintain their expansionary policy stance through H2-2020, we note that the impacts are only likely to be felt when those economies start to reopen. Also, it is important that these policies are eased as external conditions start to improve, to prevent blowing over the region’s currently low level of inflation.

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