AFRICA PREVIEW: Rate Caution to Prevail in Kenya, Ghana, Angola

LAGOS (Capital Markets in Africa) – Central banks in Kenya and Ghana are likely to keep interest rates on hold next week following in the foot steps of their larger peers in South Africa and Nigeria. Angola’s central bank is also set to leave interest rates alone as it aims to slow inflation even as it lets the currency weaken.

• Nigeria kept its key rate unchanged at 13.5% on May 21 and the South African Reserve Bank left its benchmark rate at 6.75% today.
• The Bank of Ghana unexpectedly cut its benchmark rate by 100 basis points to 16% in January, which led the cedi to weaken. A decline in the cedi and an increase in global oil prices has pushed Ghana’s inflation toward the ceiling of the central bank’s 6-10% target in 1H. As a result, we expect the central bank to leave rates alone on May 27.
• On the same day, we forecast the Central Bank of Kenya will also keep its policy rate unchanged at 9%, but policy makers are likely to sound a more hawkish note that could signal a rate hike in 2H.
• Policy makers at the National Bank of Angola are arguably facing the toughest choice among African central banks making rate decisions next week. The economy is suffering from declining oil output and high inflation.

Weaker Cedi Puts Monetary Easing on Pause
Ghana cut its benchmark rate by 100 basis-point in January, which led to a collapse in the cedi as foreign investors exited the local bond market. Inflation accelerated to 9.5% year-over-year in April from a six-year low of 9% in January, driven by rising prices for imported food.

We expect inflation to accelerate further in the near term, but the delayed publication of a rebased consumer price index may change the picture. We don’t rule out another rate cut in the current cycle, but this is likely to depend on a renewed slowdown in inflation.

Kenya to Sound Hawkish Note
We expect the Central Bank of Kenya to hold its main policy rate at 9% on May 27 but sound a hawkish note, flagging a potential rate hike in 2H. Kenya registered a jump in inflation to 6.6% year-over-year in April from 4.3% in March, as food prices rose by 7% month-on-month. Inflation probably accelerated further in May, reflecting higher transport costs.

But a late rainy season and an expected increase in duties on maize imports should moderate price growth in coming months. Still, the risk of inflation breaching the ceiling of the Central Bank of Kenya’s 2-5-7.5% target range in 2H has increased.

Inflation Jump to Shift CBK’s Policy Stance
We expect Kenya’s economy to slow this year, albeit not sharply enough to necessitate monetary support. However, it’s worth noting that the CBK cut rates in July last year when the economy was expanding at an annual rate of more than 6%.

Angola Faces Lower Oil Output
The National Bank of Angola is arguably the most pressured among central banks in the region. We recently outlined how the economy continues to contract because of falling oil output with the start of production in April at the offshore Kaombo Sul field likely to provide only a temporary respite.

Angola to Keep Rates Steady
The Banco Nacional de Angola has overseen a decline in inflation to 17.4% in April from 42% in December 2016 even as the kwanza lost more than half of its value over the same period. We expect the central bank to keep the policy rate on hold at 15.75% on May 30 as it seeks to cool inflation and further depreciate the currency.

Mark Bohlund covers Africa for Bloomberg Economics in London. He has previously worked as an economist at IHS Global Insight, BMI Research (now part of Fitch Group) and the Swedish Foreign Office.

Soucrce: Bloomberg Business News