African Nations Are Already Hiking Rates With More to Come

Inflationary pressures and currency weakness could force central banks in some key African economies to tighten monetary policy, even as the slow rollout of coronavirus vaccines and new mutations of the disease pose risks to economic growth.

Mozambique and Zambia became the first two countries in the world to raise their benchmark interest rates this year, and Zimbabwe did the same on Thursday. Three of sub-Saharan Africa’s biggest economies -- Nigeria, South Africa and Angola -- could follow suit.

African Nations Are Already Hiking Rates With More to Come

“We expect more African central banks will come under pressure to tighten monetary policy, due to persistent inflationary pressures,” said Ayomide Mejabi, chief economist for sub-Saharan Africa at JPMorgan Chase Bank NA. The Zambian central bank could announce another 150 basis points of hikes this year and the Central Bank of Nigeria is expected to tighten by at least a 100 basis points in response to rising inflation, he said.

What Bloomberg Economics Says:

“Angola and Nigeria face the most immediate pressure to act. The rest still have space to keep rates on hold until next year. The risk is that they ease further on growth concerns before the hiking cycle begins”

-- Boingotlo Gasealahwe, Africa economist

-- Click here to view the research


While Nigeria’s economy dropped into a recession for the second time in four years, surging inflation and weak liquidity in the foreign-exchange market may prompt the central bank to act soon. A slow recovery starting in the second quarter could push the monetary policy committee to “redirect its policy goals from growth, toward its primary mandates of price and exchange-rate stability,” according to analysts with Chapel Hill Denham. The Lagos-based investment bank sees the panel raising its benchmark rate to 12.5% from 11.5% this year.

South Africa

In South Africa, rising electricity and oil prices are fueling inflation expectations and driving up bets the central bank will raise its key rate this year. Forward-rate agreements, used to speculate borrowing costs, are now pricing in 42 basis points of tightening in 2021, a turnaround from the beginning of the month when expectations were for the repurchase rate to remain unchanged at a record low 3.5%. Any upward move by South Africa could be emulated by neighboring Lesotho, Eswatini and Namibia, which peg their currencies to the rand.


Angola’s central bank, which didn’t cut its policy rate in response to the virus in 2020, also faces pressure to hike due to rampant inflation. Price growth in Africa’s second-biggest oil producer jumped to 25.3% in January. Budget documents show the government sees inflation only slowing to 18.7% by the end of the year and that could force the central bank to act as the kwanza continues to weaken and the gradual implementation of a new 14% value-added tax pushes up prices.

MPCs in Nigeria, South Africa and Angola are due to meet and vote on interest rates in late March.

©2021 Bloomberg L.P.

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