As Inflation Bites Harder, African Central Banks Poised for Rate Hikes

Africa’s three biggest economies are poised to raise interest rates this week as well as next week while policy makers in several other countries stake out different approaches to navigate inflation shocks and bring prices under control, Bloomberg reported yesterday.

The central banks of Nigeria, South Africa and Egypt are among six likely to tighten monetary policy in the days ahead, it said, while another six countries are set to pause as they assess the impact of previous hikes and relief measures to contain prices.
Topping the agenda would be the implications that weaker local currencies would have on the cost of imported goods, as aggressive rate hikes by the Federal Reserve and expectations of more to come boost the dollar.

The repercussions of Russia’s war in Ukraine and an anticipated downturn in Europe and China, alongside emerging price pressures from extreme weather events, are also likely to be in the spotlight.

Nigeria’s central bank was expected to step up monetary tightening after inflation hit a fresh 17-year high in August. It threatens to remain elevated because of floods in its food-producing regions, a surge in diesel costs and continued currency weakness, the report added.
Bloomberg quoted Central Bank of Nigeria Governor, Godwin Emefiele as saying at the July MPC meeting that policy makers could lean towards additional hikes if inflation continues to be “aggressive.” An increase in the benchmark would take it over 14 per cent for the first time since the rate was adopted in 2006.The central bank, “may feel there is still some scope to raise rates in order to attract foreign exchange inflows,” said Joachim MacEbong, lead analyst at Lagos-based Acorn and Sage Consulting. “Inflation remains a serious concern,” he added.
In South Africa, worries over unanchored inflation expectations and increased depreciation pressure on the rand will probably see the country’s Reserve Bank raise its key rate for a sixth straight meeting, said Sanisha Packirisamy, an economist at Momentum Investments.All the economists polled by Bloomberg said they expected the MPC to raise its benchmark to 6.25 per cent from 5.5 per cent, in what would be the first time it hiked rates by 75 basis points at consecutive meetings.

In the same vein, economists surveyed by Bloomberg are divided over what Egypt’s central bank will do at its second meeting since Hassan Abdalla became acting governor after Tarek Amer’s shock resignation.