African Wave of Easing Is Mostly Ceased as Price Pressures Build

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 percent 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 percent to 10 percent, 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 stabilized 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 percent to 9 percent.

South Africa Easing Off Table

Any hopes that South Africa’s central bank will cut the benchmark further from 6.5 percent on Thursday seem to have dimmed, even with inflation at a seven-year low. Price-growth expectations, as measured by the five-year breakeven rate, are at the highest since Dec. 18, just before the country’s ruling African National Congress elected Cyril Ramaphosa as its leader. The rand has depreciated about 9 percent against the dollar since Feb. 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 percent 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 percent of the base rate for deposits. The lower central bank rate reduced the ceiling to 13.5 percent, 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