19 September 2018 : Next week the US Fed in all probability will announce its third interest rate hike of the year. Presently, there is a very dominant air of currency weakness owing to the wider market sell-off and an increase in inflation may coax officials to freeze borrowing costs, and worse, in some cases even start to talk about tightening.
In their meetings next week, the Central banks of Nigeria, Ghana and Kenya are most likely to keep key rates unaltered. Although, South Africa may most likely be open to a potential rate hike. While, Russia increased its key rate by 25 basis points,Turkish regulators skyrocketed their rate by 625 basis points.
Looks like the “good-ol" days of rate-cuts are over and although we don't expect drastic steps in Africa like that of Turkey and Russia, the effect of the recent emerging market event has certainly caught on to the rest of Africa as well.
Here’s a synopsis of what the continent’s Central Banks are dealing with:
South Africa
Since the beginning of August, Rand has shed 11% against the dollar, pushing inflation expectations to a three-month high. The Reserve Bank has to stabilize its goal of anchoring price growth close to 4.5 percent with the needs of an economy that fell into the hands of recession in the second quarter. The inflation rate soared to a 10-month high of 5.1 percent in July.
Ghana
Cedi’s weakness caused a lot of pride pressure in Ghana, which was worsened by the tax measures announced in July. While inflation remains within the central bank’s target band, it has risen from the low it reached in April.
The drop in currency has pretty dire consequences for inflation and it cant be said for certain how long this would last or predict the strength of the currency by the end of the year. The Bank of Ghana plans to observe these trends before they can focus on rates.
Kenya
While Kenya’s Monetary Policy Committee has said there is room for a more accommodative stance, price pressures due to the introduction of a tax on fuel and the decision by lawmakers to not revoke a law capping commercial borrowing costs may temper this.
The Central Bank is highly unlikely of any movement in the near-short term fueled by the risk of an uptick in inflation.
Nigeria
Nigeria’s inflation rate increased for the first time in 19 months in August and pre-election bonanza mixed with the “record budget” could aggravate price pressures. According to Deputy Governor Joseph Nnanna the central bank is in the mood for tightening and will most likely increase its main interest rate if inflation doesn’t calm down.
Gross reserves are near a six-month low and there are chances that it could come under more pressure due to increasing capital outflows. Three of ten MPC members voted for tighter policy in July. These members amongst others may push a rate hike in a bid. These members alongside others may push for a rate hike in an effort to rein in inflation.
Reporting for EasyKobo on Wednesday , 19 September 2018 in Lagos, Nigeria