Growth
or inflation? This is the question for continent's big economies this
week as commodity prices remain low and investors remain risk averse
Nigeria
central bank governor Godwin Emefiele has been under huge scrutiny for
months over his handling of the economy. (Photo/File)
AFRICA’S biggest economies are taking opposite
approaches on monetary policy as they struggle to cope with collapsing
commodity prices and a slump in investor confidence.
South Africa,
Nigeria, Angola and Ghana are set to announce their first interest-rate
decisions of the year this week in an environment complicated by
plummeting currencies, rising inflation risks and deteriorating growth.
While a record-low rand may force South African policy makers to take
more aggressive action, Nigeria is set to stick to its looser policy,
according to analysts surveyed by Bloomberg.
The contrasting
approaches underscore the difficult policy choices African central banks
are being forced to take as their currencies suffer the worst of the
rout in global financial markets.
In Nigeria, the continent’s biggest economy, growth concerns and naira
stability have trumped inflation risks, while fiscal pressures in Ghana
and an oil-triggered crisis in Angola have fuelled weaker currencies and
prompted higher interest rates.
“A further decline in commodity
prices, tightening of monetary policy by the US Federal Reserve, and
unfavourable weather conditions mean that the short-term outlook for
African currencies is weak,” Jacques Verreynne, an economist at NKC
African Economics, based in Paarl, near Cape Town, said in an e- mailed
response to questions.
“Although the outlook for economic growth
is fairly weak in many parts of the continent, there is pressure on
central banks to raise interest rates in order to anchor inflation
expectations,” he said.
Ghana-unchanged
The Bank of Ghana
is set to kick off the week’s policy decisions by keeping its benchmark
interest rate unchanged at 26% on Monday after three increases last
year, according to seven of the 10 economists surveyed by Bloomberg.
Kenya’s central bank also opted last week to extend the pause in its
interest-rate cycle by leaving the policy rate at 11.5%. Ghana central bank governor Kofi Wampah (right)
In
Nigeria, pressure is mounting on Governor Godwin Emefiele to devalue
the naira and ease foreign-currency controls that are hurting businesses
and worsening the outlook for growth in Africa’s biggest oil producer.
He
surprised market analysts at the last Monetary Policy Committee meeting
in November by cutting the benchmark rate by 2 percentage points to 11
percent and snubbing calls to weaken the currency.
All but one of
the 22 economists surveyed by Bloomberg predict Emefiele will leave the
key rate unchanged on Tuesday, with some predicting an adjustment to the
naira rate.
“The concerns are that the currency is under
pressure, that the currency is misaligned,” Bismarck Rewane, chief
executive officer at Financial Derivatives Co. Ltd., said by phone from
Lagos, Nigeria’s commercial capital. “Ghana and South Africa have
already moved closer to an equilibrium. Nigeria has not really accepted
that the currency price is in disequilibrium.”
South Africa—aggressive
While
the Central Bank of Nigeria has virtually fixed the naira at 197-199
per dollar since March, South Africa’s rand has plunged about 29% and
Ghana’s cedi is down almost 8% in the same period. Authorities in
Angola, sub-Saharan Africa’s biggest oil producer after Nigeria, have
gradually devalued the kwanza since last year.
The rand’s slide to
a record-low of 17.9169 per dollar on January 11 is adding to pressure
on inflation in South Africa at the same time that the worst drought in
more than a century boosts food costs. Inflation accelerated to 5.2% in
December and is set to exceed the central bank’s 3% to 6% target band
this year. The rand gained 0.2% to 16.4389 by 8:57 a.m. in Johannesburg.
That
may prompt the Reserve Bank to increase the magnitude of its rate
increases from 25 basis points. While most of the 23 economists surveyed
by Bloomberg predict higher rates this week, 16 forecast the repurchase
rate of 6.25% will be lifted by at least 50 basis points.
Zuma shocked markets
The
MPC decision is the first since the US Federal Reserve raised interest
rates in December and President Jacob Zoom shocked financial markets by
changing his finance minister three times in the space of five days,
triggering a weaker rand.
Governor Lesetja Kganyago said in an
interview on January 20 that it’s impossible to avoid the trade-off
between growth and inflation and the central bank will “act with
resolve” if price pressures stemming from a weaker rand spread more
broadly in the economy.
“There’s still room for African central
banks to tighten monetary policy,” Courage Kingsley Martey, an economist
at Databank Group Ltd., said by phone from the Ghanaian capital, Accra.
“It is possible to sacrifice growth for some time and then allow
macroeconomic stability to return, else inflation will return to haunt
growth.” UPDATE: Ghana Monday left its benchmark interest rate unchanged at 26% after raising it three times last year to curb soaring inflation. —Bloomberg. With assistance from Simbarashe Gumbo.
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