African central banks face end to cutting cycle at July meet

Bloomberg

After aggressive interest-rate reductions to shore up their economies against the havoc wrought by the coronavirus pandemic, central bankers in most sub-Saharan African countries will ask themselves whether the cutting cycle is over when they meet over the next nine days.
South Africa’s monetary policy committee (MPC) may take advantage of the scope to lower its benchmark rate even further, while those in Nigeria, Angola, Ghana and Kenya contend with currency weakness and rising consumer prices.
“Very few countries have space to ease monetary policy further, given continued exchange-rate pressures and rising inflation,” said Ayomide Mejabi, chief economist for sub-Saharan Africa at JPMorgan Chase Bank NA. “Although core inflation has remained relatively stable, increased monetisation of fiscal operations, given wider deficits brought on by the pandemic, likely will result in rising price pressures in coming months.”
After an unexpected 100 basis-point reduction in the policy rate at its May meeting, Nigeria’s central bank is expected to leave the benchmark unchanged, even as it tries to avert a recession. That’s because it may want to avoid further pressure on the naira, which was devalued earlier this month.
“The cut has not had any effect, but just signalled an accommodating stance,” said Ayodeji Ebo, managing director at Afrinvest Securities in Lagos. “It may be too quick to have another cut if we have not seen the impact from the last one.”
South Africa’s central bank is likely to lower its benchmark interest rate for a fifth time in as many meetings, albeit by a smaller margin.
After aggressive cuts that took repurchase rate to the lowest level since it was introduced in 1998, the MPC will probably revert to moving in 25 basis-point increments as it seeks to rely on data to assess the damage caused by the virus, said Sanisha Packirisamy, an economist at Momentum Investments.
While inflation has dropped below the Reserve Bank’s target band for the first time since 2005, the MPC projected such a breach for the second and third quarters, and Governor Lesetja Kganyago said last month the panel would only step in if this proved to be persistent. Forecasts show inflation will pick up into 2021, which could lead to negative real interest rates.
“At the current juncture, what the National Bank of Angola should be doing is what many central banks have done: provide liquidity to the economy to face the crisis,” said Carlos Rosado de Carvalho, an economist at the Catholic University of Angola. “But this is not
possible due to rising inflation.”
Ghanaian policymakers will probably keep the key rate at an eight-year low for a second meeting. Inflation breached the upper end of the central bank’s target for a third straight month in June, but the MPC expects it to return to within the 6% to 10% band by the end of the year.
Angola’s central bank hasn’t cut its policy rate this year and is unlikely to do so now, even as the economy faces a triple shock due to the virus, a steep decline in oil prices and a reduction in crude output to meet its Opec+ commitment. That’s because consumer prices have been fueled by the kwanza that’s lost 15% of its value against the dollar this year.
“Ghana, like many other countries in the region, is not out of the woods yet; coronavirus infections are much more than what they were at the last MPC,” said Courage Boti, an Africa economist at Accra-based Databank Group. “That will drive the decision and they will want to hold the rate.”
The central bank may wait six months before it considers raising rates, Governor Ernest Addison said in June.