In contrast to their counterparts in Europe and Latin America, African central banks are expected to maintain tight monetary policies in upcoming decisions on interest rates over the next three weeks. Major economies, including Egypt, Nigeria, South Africa, Kenya, and Angola, are likely to keep rates higher until at least the second half of the year. Persistent inflation, risks from weaker currencies, and geopolitical tensions in the Middle East contribute to this cautious approach.
The escalating tensions in the oil-rich region pose potential risks, as demonstrated by attacks by Houthi militants on vessels in the Bab El-Mandeb strait, causing ships to reroute around Africa. This has already led to a spike in freight costs, impacting global trade significantly.
Smaller economies such as Ghana and Mozambique may consider loosening monetary policy in the first half of 2024 due to having some of the highest real rates globally when adjusted for inflation. However, inflationary pressures and currency weaknesses will likely keep rates unchanged in the initial monetary policy committee meetings of the year.
The stance of specific key economies:
- Angola (Jan. 19):
- BNA rate: 18%
- Inflation rate: 20% (Dec.)
- Expected to maintain or potentially raise interest rates due to inflation concerns and exchange-rate pressures.
- South Africa (Jan. 25):
- Repurchase rate: 8.25%
- Inflation rate: 5.5% (Nov.)
- Inflation target: 3%-6%
- Likely to leave key interest rates unchanged for a while longer, monitoring inflation expectations and only considering rate cuts when inflation aligns with the target.
- Ghana (Jan. 29):
- Policy rate: 30%
- Inflation rate: 23.2% (Dec.)
- Inflation target: 8% +/- 2 ppts
- Expected to delay rate cuts to assess the impact of new taxes on inflation.
- Mozambique (Jan. 31):
- MIMO interbank rate: 17.25%
- Inflation rate: 5.3% (Dec.)
- Expected to delay rate cuts despite having room to ease, influenced by inflation and the need for non-extractive economic growth.
- Egypt (Feb. 1):
- Deposit rate: 19.25%
- Inflation rate: 33.7% (Dec.)
- Inflation target: 7% +/- 2 ppt
- Likely to delay tightening until another currency devaluation occurs, potentially following an agreement with the International Monetary Fund.
- Kenya (Feb. 6):
- Central bank rate: 12.5%
- Inflation rate: 6.6% (Dec.)
- Inflation target: 5% +/- 2.5 ppts
- Expected to keep borrowing costs unchanged, assessing the impact of the December tightening before considering any rate adjustments.
- Nigeria (TBC):
- Policy rate: 18.75%
- Inflation rate: 28.9% (Dec.)
- Inflation target: 6%-9%
- No confirmed rate-setting meeting date, but economists anticipate a potential significant rate increase to combat stubborn inflation.
