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How coronavirus will dominate African interest-rate decisions

Markets are pricing in a 50 basis-point rate cut in South Africa.
The South African Reserve Bank. Image: Moneyweb

Central bankers in five key sub-Saharan African countries will meet on interest rates in the next ten days as the focus turns to them for measures to shore up their economies that are expected to be hit by the novel coronavirus.

Since their monetary policy committees last met, South Africa declared a national state of disaster, Ghana set aside the local-currency equivalent of $100 million to combat virus-driven contagion and Kenya’s central bank dropped charges on mobile-money transactions to curb the use of cash for hygiene reasons. Many governments have moved to restrict travel.

On Monday, monetary policymakers in Mozambique reduced reserve requirements to boost liquidity, and those in Nigeria announced measures including the extension of a moratorium on principal debt repayments. Still, after the US Federal Reserve cut its main interest rate to near zero, the attention now is on what African central banks, many of whom target inflation and have to prop up volatile currencies, will do with interest rates to help their economies.

“We expect the Covid-19 outbreak and current market turmoil to be major points of discussion as policy makers deliberate on the rate decision, with the bias certainly downwards for those countries which have scope to cut,” said Ridle Markus, an economist for sub-Saharan Africa at Absa Bank. Policy makers in oil-producing countries “will need to balance the significant downside risks to growth, brought by the slump in oil prices, against the risks resulting from the deteriorating balance of payments and worsening inflation outlook,” he said.

Here’s what central bankers in the region may do in the next ten days:

South Africa, March 19
Repurchase rate: 6.25%
Inflation rate: 4.5% (January)


A combination of downside surprises on inflation, the second recession in two years and continued power cuts supported the case for a 25 basis-point reduction in Africa’s most-industrialised economy. That was even before the virus prompted large-scale disruptions in global output and the government announced steps to restrict travel and public gatherings, according to analysts including Citibank South Africa economist Gina Schoeman.

“The strict measures taken on the virus in South Africa reinforces that the South African Reserve Bank has to step in because the economic problem is a big one,” Schoeman said. “We will be in a recession this year.”

It’s the quantum of the rate cut that is up for debate. Of 21 economists in a Bloomberg survey, 12 forecast a 25 basis-point cut, eight predicted a reduction of 50 basis points and one said the repurchase rate would be kept at 6.25%.

What Bloomberg’s economist says

“We previously thought that the risk of a rand sell-off would keep the SARB on hold on Thursday. Further monetary policy easing by the Fed has assuaged these concerns. Now we expect a cut — it has become much clearer in recent days that South Africa will experience substantial disruption from measures to contain its coronavirus outbreak.” – Boingotlo Gasealahwe, Africa economist

Ghana, March 23
Policy rate: 16%
Inflation rate: 7.8% (February)

Under normal circumstances, a reduction in US interest rates would support a rate cut in Ghana, but the coronavirus presents risks for the West African nation in the form of lower export earnings due to the oil drop and imported inflation.

“It is still too early for the central bank to be thinking of cutting rates, I see a hold while Ghana awaits the full impact on the economy,” Agyapomaa Gyeke-Dako, a senior lecturer in economics at the University of Ghana Business School, said by phone. “Cutting rates will cause some inflation in addition to the inflation from the supply side.”

Kenya, March 23
Central bank rate: 8.25%
Inflation rate: 6.4% (February)

The east African nation’s MPC is likely to lower its key rate for a third consecutive meeting Monday, following other central banks which have adopted an accommodative stance to soften the risks associated with the pandemic and its effects on global supply chains, said Maryanne Nganga, an assistant investment analyst at Cytonn Investments.

“We have a bias toward a 25 basis-point cut,” she said. The MPC could cut to make more credit available to importers to source form alternative markets in a bid to reduce supply-side shortages, Nganga said.

Nigeria, March 24
Policy rate: 13.5%
Inflation rate: 12.1% (January)

The MPC will probably adopt a wait-and see approach and seek to assess how the global pandemic and nosedive in oil prices will affect growth and currency stability in Africa’s biggest economy.

“The regulator, in all likelihood, is making the calculation that a bold, immediate move may send panic in the currency and bond markets about the country’s fiscal situation, despite investors slowly pricing in the possibility of a global economic slowdown this year,” said Ikemesit Effiong, head of research at SBM Intelligence. “It has quietly allowed the currency to slide to its lowest since mid-2017 and has signalled that it will clamp down on speculators. It will continue propping up key sectors quietly to maintain a semblance of stability.”

Policy makers will, for now, also ignore the threat of a slowdown in China and recession in the US due to persistently high inflation in Nigeria. They will likely reduce the key rate in the latter part of the second quarter or early in the third quarter, he said.

Angola, March 27
BNA rate: 15.5%
Inflation rate: 17.06% (December)

Before the pandemic, the economy of Africa’s second-largest oil producer was forecast to expand for the first time in four years in 2020. While the outbreak and its impact on oil prices could threaten that, it may still not lead to rate cuts because monetary policy often has little effect on economic activity in the southwest African nation, according to Precioso Domingos, an economist at Catholic University of Angola.

Angola depends heavily on imports and scarcity due to the virus could push up inflation.

“Angola is not your classical example whereby lowering interest rates will stimulate economy,” Domingos said. “The BNA’s major concern will be to seek to maintain the kwanza stability and in that regard it may actually follow a reverse path to that of US Fed.”

© 2020 Bloomberg L.P.

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