In the forthcoming weeks, the central banks of Nigeria, Ghana, Kenya, Egypt, and South Africa will convene to deliberate on monetary policy. Given the current global economic climate and internal pressures, we expect these monetary authorities to sustain a tight monetary policy stance. This approach addresses ongoing inflationary pressures, mitigates currency volatility triggered by a strengthening US dollar, and sets favourable inflation and exchange rate expectations. The following sections provide our projections for each country, outlining the drivers of these policy decisions and their potential economic consequences.
Nigeria
For the 16th consecutive month, Nigeria’s inflation surged to 33.69% in April 2024, closely aligning with Stears’ bear forecast of 33.91%. The principal drivers—escalating food and energy costs—continue to exert upward pressure. Despite a temporary appreciation earlier this year, the naira has recently experienced a downturn since mid-April, likely exacerbating inflation through increased costs of imported goods, particularly food. Given these conditions, the removal of electricity subsidies, and higher fuel costs, Nigeria’s MPC is poised to continue its tightening cycle. We predict an interest rate increase of 100-200 basis points at the upcoming MPC meeting scheduled for May 20 and 21, with the current rate at 24.75%. Voting amongst the twelve committee members will be split between a hold or hike, but most will likely favour the latter.
South Africa
As South Africa approaches its national elections on May 29, there has been a recent reduction in load shedding, potentially boosting short-term economic output. Despite this, the macroeconomic conditions remain strained, with the unemployment rate at an elevated 32.90% as of Q1 2024 from 32.10% in Q4’2023 and rising input costs contributing to ongoing inflationary pressures. Although inflation has slightly declined to 5.30%
Egypt
The upcoming Monetary Policy Meeting (MPC) on May 23 is the first since Egypt devalued its currency by over 40%. The apex bank cancelled its meeting for March 28 because it was shortly after the March 6 emergency meeting to devalue the currency. For the May session, we maintain our view that the Central Bank of Egypt’s (CBE) committee members will agree to hold rates to curtail rising inflation risks, anchor inflation expectations, and keep rates attractive to investors to further improve dollar inflows. This is underpinned by the upward trend in the April monthly inflation rate (a better reflection of inflation today) to 1.06% from 0.95% in March on higher food and energy prices. Despite the 2.24% appreciation in the Egyptian pound in the last two weeks, elevated price pressures exist. This is primarily driven by the lingering Middle-Eastern war that continues to hamper food imports, translating to higher prices and the Egyptian government instituting energy sector reforms to receive support funds from the IMF.
Ghana
As the Cedi depreciates due to a stronger US dollar and lower foreign exchange earnings, service prices, including health and transportation, are expected to keep inflationary pressures high in the near term. This will further be exacerbated by the expected increase in election campaign spending ahead of the December elections. Per the election calendar, election activities will take full swing from May 27. Upward price pressures are exemplified by the increase in Ghana’s monthly inflation rate to 1.80% in April 2024. In response, the Bank of Ghana (BoG) is expected to unanimously hold rates at 29.00% at its meeting on May 22-24 to narrow the inflation-interest rate gap, support the Cedi, and alleviate market sentiments. This is unchanged from our initial stance on the BoG’s interest rate decision.
Kenya
The Kenyan shilling has maintained its upward trend, appreciating 2.29% in the last three weeks. This trend is expected to continue in the near term, thus supporting the deceleration of inflation. Kenya’s inflation rate declined to 4.98% in April, below our most conservative forecast of 5.77%. The decline in inflation was driven by the slower pass-through effect of currency pressures on energy prices. However, El Nino has led to floods in coastal areas responsible for food production in Kenya, amplifying inflation risks. Food weighs 32.91% in Kenya's inflation basket, meaning that higher prices will impact the overall movement in headline inflation. Deepening its forward guidance approach to hedge against future inflation risks, the Central Bank of Kenya (CBK) will keep rates higher for longer. We expect the bank’s committee members to leave the monetary policy parameters unchanged at its next meeting in June. The meeting details have yet to be announced.
