Central banks in Africa’s biggest economies are poised to raise interest rates this month to contain sticky inflation and deter a selloff in their assets exacerbated by the collapse of US lender Silicon Valley Bank and stress at Credit Suisse Group AG.

Nigeria, South Africa, Egypt, Morocco and Kenya are projected to raise borrowing costs in the next two weeks.

Monetary authorities in nations such as Ghana and Angola, where inflation is on a downswing, are predicted to hold. Six smaller African economies will stake out different approaches to bring prices under control and deal with the contagion caused by the global banking crisis.

A gauge for government dollar bonds in Africa has dropped every day of the past seven, pushing the yield on the average security on the continent up 164 basis points to 14.36%. That’s the highest level since 3 November. All the bonds in the index are rated junk.

While investors have rushed to the safety of bonds in general amid the crisis, they have favoured quality credit and sold sub-investment grade securities.

The Federal Reserve’s rate path will also be key in decision-making. An expected slowdown in monetary tightening in the US because of the banking turmoil could weaken demand for the greenback, which would cut developing nations’ cost of servicing their dollar-denominated debt, make their imports less costly and help them draw more international investment.

South Africa, March 30

• Repurchase rate: 7.25%
• Inflation rate: 6.9% (Jan.)
• Inflation target: 3%-6%

The South African Reserve Bank’s fight against inflation is unlikely to be derailed by weakness in the global banking system.

Policymakers nearing the end of the interest-rate hiking cycle, will probably raise the benchmark by 25 basis points to address potential risks to the inflation outlook, said Sanisha Packirisamy, an economist at Momentum Investments. They include the knock-on effects of a weaker currency, with the rand having weakened about 7% against the dollar this year.

Average inflation expectations for the year stand at 6.3%, well above the central bank’s 4.5% target.

While traders have pared bets for a quarter-point increase, that’s largely in line with expectations of less tightening by the Fed after the collapse of SVB.

South Africa’s MPC may take direction from the European Central Bank, which delivered a 50 basis-point hike last week. The ECB “made a loud statement to markets to suggest that fighting inflation is their top priority but they stand ready to support the financial sector if needed through financial stability tools,” Packirisamy said.

Africa’s Economies

The Banco Nacional de Angola’s monetary policy committee will likely hold its key interest rate after a 150 basis-point cut in January, the steepest since July 2018, said Euriteca Andre, an economist and university lecturer.

Policymakers in Nigeria are expected to extend their longest phase of monetary tightening in more than a decade to tame inflation that’s still near an 18-year high, said Mohamed Abu Basha, head of macroeconomic research at Egyptian investment bank EFG Hermes. Rates have been increased by a cumulative 6 percentage points since May.

The Bank Al-Maghrib (Morocco) is set to raise interest rates for a third consecutive meeting to rein in inflation that’s at a 30-year high and more than double its 3.9% target for 2023 stoked by an acute drought and rising input costs.

After lifting the benchmark interest rate by a combined 14.5 percentage points since November 2021, economists surveyed by Bloomberg expect the Bank of Ghana’s MPC to stand pat.

Kenyan policymakers will likely increase the key rate to battle inflation and shield the local currency, which has depreciated more than 4% against the dollar since they last met in January.

Egypt’s central bank is poised to deliver a jumbo rate hike after inflation quickened faster than expected and food prices in the Middle East’s most populous country surged at a record pace, stoked by a series of currency devaluations.

Zimbabwe will likely cut the world’s highest interest rate for a second time this year, said Prosper Chitambara, a Harare-based economist. The recent adoption of blended consumer prices, which tracks costs in US and Zimbabwean dollars, rather than just the local-currency, means a deceleration in inflation will continue, he said.

Neighboring Mozambique is set to hold its benchmark interest rate even as double-digit inflation will endure until the end of the first half of 2023 partly because of the devastation wrought by Cyclone Freddy, said Gerrit van Rooyen, economist at Oxford Economics Africa. The MPC’s proactive response to inflation has meant that despite the uptick its real rate is among the highest in Africa.

Further south, Eswatini and Lesotho whose currencies are pegged to South Africa’s rand, will probably match the Reserve Bank’s move.

Island nations Mauritius and Seychelles are poised to keep their key rates unchanged. Seychelles inflation is close to a three-year low and price growth in Mauritius is easing after five successive rate increases.

Hiking again “could be trickier amid instability within the global banking system following the implosion of Silicon Valley Bank,” said Bhavik Jugurnath, an independent economist. “I think the MPC would want to wait at least a quarter and see how this plays out,” he said.

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Read: South Africa has reached a new low – and it could get worse: Reserve Bank

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