Season of easing over as African central bankers expected to keep rates on hold

The risk of a reversal in the inflation drop that has characterised many of the biggest African economies in the last year, will likely mean a freeze on borrowing costs.

Rate decisions across Africa in the next two weeks are likely to confirm the continent’s biggest economies have mostly ceased a wave of easing that’s been going since last year.

Factors from sticky inflation to rising crude prices may persuade central bankers to freeze borrowing costs. Institutions in Nigeria, South Africa, Angola, Kenya and Mauritius will probably keep key rates unchanged at their forthcoming meetings — and only Ghana’s is seen by some economists as open to a potential cut on Monday.

Slowing price growth and tepid economic expansion in some African countries had given central banks room to loosen policy over the past year. Now fears of outflows and currency depreciation, risking a reversal in the inflation drop, may spur caution on moving too fast or too far.

“We’ll see them generally hold,” Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said. “The intention is to ease policy in Nigeria, but they need inflation to be a little bit lower to try preserve positive a real rate. In Kenya, inflation has bottomed out and I see it picking up.”

Here’s a round-up of what the continent’s central bankers are dealing with.

Ghana cut on cards

Ghana’s central bank cut its benchmark rate to a four-year low of 18% in March and may reduce it further after consumer-price growth slowed to single digits last month.

While inflation is now inside the central bank’s target band of 6% to 10%, the upward pressure on the cost of oil means a “cautious cut of between 50 to 100 basis points” is possible, said Courage Martey, an economist at Databank Group.

Another hold in Nigeria

In Nigeria, policy makers have retained the benchmark rate at a record high since July 2016 to help support the naira and will probably do the same on Tuesday. The currency has stabilised against the dollar and reserves increased, but the central bank is wary of foreign-exchange pressures. While price growth eased for a 15th straight month in April, and is now below the key interest rate, it remains well outside the target band of 6% to 9%.

South Africa easing off table

Any hopes that South Africa’s central bank will cut the benchmark further from 6.5% on Thursday seem to have dimmed, even with inflation at a seven-year low. Price-growth expectations, as measured by the five-year break-even rate, are at the highest since December 18, just before the ANC elected Cyril Ramaphosa as its leader. The rand has depreciated about 9% against the dollar since February 26, when it reached the strongest level in three years. That raises the cost of imported goods, including oil.

Rate caps in Kenya

Policy makers in Kenya are likely to hold the key rate on May 28 after unexpectedly reducing it to an almost three-year low of 9.5% in March, even with inflation at the lowest since 2013.

While the reduction was geared toward reinvigorating credit growth, it could have the opposite effect, with banks shunning borrowers because of an interest-rate cap introduced in 2016. Lenders are allowed to charge a maximum four percentage points above the prevailing central-bank rate and are required to pay at least 70% of the base rate for deposits. The lower central bank rate reduced the ceiling to 13.5%, further discouraging banks from lending.

“They still need to give the recent cuts some time to seep through because I don’t think they have assessed the impact yet,” Faith Atiti, a senior economist at Nairobi-based Commercial Bank of Africa, said.

Angolan difficulties

Angolan policy makers meet on May 28. The kwanza has weakened 28% against the dollar this year, the most among currencies on the continent. The inflation rate declined to 21% in April from as high as 42% in December 2016. Africa’s second-biggest oil producer is struggling with foreign-exchange shortages and rising debt, and devalued its currency in January in a bid to boost the economy.

Record low in Mauritius

The central bank has maintained the key rate at a record-low 3.5% since September, when it lowered the rate to stimulate the economy. The bank delayed its rate decision to May 30 from May 18 after it appointed three new Monetary Policy Committee members and increased the panel’s size to eight from seven