(Bloomberg) -- Central banks in Africa’s largest economies are under attack as politicians campaign to limit regulators’ jurisdictions and demand changes to policy implementation.
In South Africa, senior officials from the ruling African National Congress said the Reserve Bank should help support the rand and that its authority to issue banking licenses must be revoked. President Uhuru Kenyatta of Kenya, East Africa’s most advanced economy, signed a law capping commercial lending rates even as central bank Governor Patrick Njoroge said it would damage the economy. In Nigeria Finance Minister Kemi Adeosun has said monetary policy implementation needs to change because the nation’s structural inflation doesn’t respond to rate increases.
Political and economic pressure is mounting in South Africa, where the ANC will elect new leaders in December 2017, and where the economy is set to expand at the slowest pace since a 2009 recession this year. In Kenya, Kenyatta hopes to secure a second term in presidential elections next August and Nigeria’s government under President Muhammadu Buhari is trying to reverse the effects of a 15-month currency peg that contributed to the economy contracting and drove inflation to the highest rate in more than a decade.
“This is indicative of the broader economy, as well as the micro-economic stresses and pressures facing these economies,” Mike Barnes, the Johannesburg-based managing director of brokerage Securities Africa, said in an e-mailed response to questions. “Too much interference will damage the credibility of the central banks, which in turn will negatively influence the investment potential of the countries.”
The South African Reserve Bank, the Central Bank of Nigeria and the Central Bank of Kenya will all announce their interest-rate decisions next week. South Africa’s Governor Lesetja Kganyago and Kenya’s Njoroge will probably keep borrowing costs unchanged, while Nigeria is likely to tighten policy, according to the median of economist estimates in separate Bloomberg surveys.
“African central banks should have operational independence to pursue monetary policy goals and transparency,” the International Monetary Fund’s Deputy Managing Director Mitsuhiro Furusawa said in the Kenyan capital, Nairobi, on Sept. 13. “The politicization of monetary policy bears well-known risks for the soundness of the financial system and for credit access.”
South Africa’s Mineral Resources Minister Mosebenzi Zwane proposed two weeks ago that government transfers authority to license lenders to the finance minister from the Reserve Bank. Before that ANC Deputy Secretary-General Jessie Duarte said the central bank should help to support the rand, which has weakened almost 5 percent against the dollar since reports that the police asked Finance Minister Pravin Gordhan to visit their offices and speak to them in connection with allegations that he oversaw the establishment of an illegal investigative unit at the state tax agency almost a decade ago.
“The issues that we are seeing are very specific to what is happening in individual economies,” Razia Khan, head of Africa macro research at Standard Chartered Plc in London, said in an e-mailed response to questions. “Perhaps the most alarming of these issues was the very specific, politically-motivated attacks on the Reserve Bank of South Africa, which is widely thought to be the most independent, not just of sub-Saharan African central banks, but wider emerging markets as well.”
Kenyan lawmakers have approved legislation, which is now awaiting the president’s signature, that will force the central bank to consult with it before putting a lender under receivership after three banks failed within eight months. Kenyatta also signed a law that caps commercial bank interest rates at 400 basis points above the central bank rate even as the regulator warned it will be “regressive to growth.”
“Approval of the bill in Kenya created fear among investors of a new kind of interest-rate populism,” Alan Cameron, a London-based economist at Exotix Partners LLC, said by e-mail.
The Central Bank of Nigeria faces a policy conundrum with accelerating inflation and a weak naira on the one hand, and an economy forecast to contract this year for the first time since 1991. Central bank Governor Godwin Emefiele raised borrowing costs by 200 basis points in July to lure foreign investment and prop up a currency that’s lost almost 40 percent against the dollar since the removal of a 197-199 per dollar peg on June 20. The naira weakened 0.16 percent to 315.75 against the dollar by 8:09 a.m. in Lagos, the commercial hub.
“The central banks are especially under the spotlight in countries where you have relatively high poverty rates,” Oyin Anubi, a London-based economist at Bank of America Merrill Lynch, said by phone. “A weak exchange rate does feed through into inflation, which can disproportionately hurt the poor. The exchange rate and inflation can very easily become political issues.”