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Africa’s major central banks embarking on policy easing cycle ride

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By Vuyani Ndaba

JOHANNESBURG (Reuters) – Africa’s major central banks are entering an easing cycle as they try to stimulate growth after months of drought, austerity drives and confidence issues across the continent, a Reuters poll found on Thursday.

Much of southern and eastern Africa is still recovering after an El Niño-related drought wilted crops last year. Poor business confidence in South Africa and foreign exchange restrictions in Nigeria have also hampered growth.

“We expect that African monetary policy is entering a widespread and protracted period of policy easing. This will provide a boost to growth,” said John Ashbourne, Africa analyst at Capital Economics.

Ghana, which agreed a three-year fiscal discipline deal with the International Monetary Fund in exchange for aid in 2015, cut 100 basis points from its benchmark interest rate in May and is expected to do the same on Monday, putting it at 21.50 percent.

Medians in the poll predict South Africa will make a first quarter trim of 25 basis points to 6.75 percent and while Kenya will hold steady on Monday it is expected to cut 100 basis points to 9.00 percent in the second quarter of next year.

Nigeria is expected to hold rates at 14.0 percent on Tuesday, and through this year, but will reduce borrowing costs by 175 basis points across 2018.

BATTERED CONFIDENCE CHIPS AT GROWTH

Aly-Khan Satchu, CEO of Nairobi-based Rich Management said policymakers in Africa’s biggest economies have lost credibility and it would be difficult to regain that.

To try to reduce demand for dollars, Nigeria banned the importing of 41 items, but that only fuelled the gap between the official and black market rates for its naira currency.

The policy, alongside a commodity price slump that hurt oil exports, has since 2015 forced its central bank to hike the benchmark rate 300 basis points to 14 percent as it tried to deal with much faster inflation and restore the currency’s strength.

Nigeria — Africa’s biggest economy — fell into recession for the first time in 25 years in 2016 but is expected to turn in growth of 1.0 percent this year and 2.5 percent the following.

South Africa is expected to expand 0.7 percent this year after escaping a six-month recession last quarter that was partly due to weak confidence and drought.

Confidence in South Africa’s economy has been sapped by the chopping and changing of finance ministers four time since the end of 2015 by President Jacob Zuma. The last change in March triggered a credit rating downgrade to “junk” status.

Kenya is expected to grow 5.2 percent this year and 5.9 percent next.

Growth slowed to 4.7 percent in the first quarter, hit by a credit slow down after authorities late last year capped the interest banks could charge on loans.

However, Ghana is expected to fare better than most, growing 6.1 and 6.8 percent in 2017 and 2018 respectively, supported by the IMF programme, recovering from 3.5 percent last year.

On Tuesday, President Nana Akufo-Addo said Ghana would not extend its three-year aid programme with the IMF beyond April 2018, but the fund urged it to do so to allow time to complete the programme’s goals.

 

 

(Editing by Jonathan Cable/Jeremy Gaunt)

 

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Bank of Ghana governor plans to fight inflation, boost growth

Comments (0) Africa, Business, Latest Updates from Reuters

ACCRA (Reuters) – Ghana’s new central bank governor said on Monday his top priority was to fight inflation, but he also wanted to pursue new policies to boost local business growth.

In his first interview since being named Bank of Ghana governor last week, Abdul-Nashiru Issahaku pledged full commitment to an International Monetary Fund (IMF) programme aimed at stabilising the economy.

“My focus is to work assiduously to achieve our core responsibility of ensuring price stability,” Issahaku said.

Consumer inflation in the West African country, an exporter of gold, cocoa and oil, eased to 18.5 percent in February from 19 percent in January.

But it remains above the government’s upper target of 15.7 percent, while the central bank’s benchmark 91-day Treasury bill rate stood at 22.7713 percent on Friday.

At the same time, gross domestic product growth has fallen from around 14 percent in 2011 to 4.1 percent last year, in part because of a global slump in commodity prices.

President John Mahama promoted Issahaku from deputy governor when his predecessor, Henry Kofi Wampah, stepped down last month ahead of what is expected to be a closely fought election in November when Mahama will run for a second term.

Issahaku takes over at a crucial time for the bank, one year into the IMF programme. Some fear the election will put pressure on policy makers, including the central bank, which is independent, to loosen financial controls.

It also comes as the bank’s main lending rate stands at 26 percent, leading to complaints by many in the business community that it is stifling growth.

Issahaku, a member of the government’s economic management team, said he would work with the Finance Ministry and other agencies to maintain spending limits. “Elections or no elections, I remain committed to the programmes and we cannot afford to derail,” he told Reuters.

But he said Ghana had to begin immediately to “start to think out of the box about propelling growth of local businesses and creating employment.”

Ghana was one of Africa’s economic stars for years. Since the 2012 election, however, it has been tackling a budget deficit, high levels of public debt, inflation and a currency that fell sharply in 2014 and 2015.

Ghana’s cedi currency withstood a seasonal first quarter pressures to rally against the dollar in a sign of the impact of the IMF programme and bank policies.

Issahaku said he wants to sanitize the financial sector, especially micro finance firms, and enhance the regulator’s transparency and capacity. To boost growth, he would consider options to provide incentives to banks to offer credit to strategic sectors at reasonable rates. The governor has worked with the World Bank and the African Development Bank and holds a PhD in International Affairs and Development from Clark Atlanta University.

 

(By Kwasi Kpodo. Editing by Matthew Mpoke Bigg and Richard Balmforth)

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Bank of Ghana keeps benchmark interest rate at 26%

Comments (0) Africa, Business, Latest Updates from Reuters

ACCRA (Reuters) – Ghana’s central bank kept its benchmark policy rate at 26 percent on Monday citing moderation in the pace of consumer inflation, its governor Henry Kofi Wampah said.

The West African nation is under a three-year aid program with the International Monetary Fund (IMF) to support an economy dogged by high fiscal deficits and public debt, with consumer inflation consistently above government target.

The Bank of Ghana had set the current rate in November, its highest level in 12 years.

“The current tight monetary stance, supported by the continuing fiscal consolidation and improvement in the energy situation have led to a low risk in the outlook,” Wampah told journalists.

Ghana’s consumer inflation rose marginally to 17.7 percent, one of the highest in the West African region but Wampah said the central bank’s monetary tightening in recent months could limit any further rise.

“Going forward, the committee expects the slower pace of price changes to continue and steer inflation down towards the medium target band of eight percent, plus or minus two percent,” Wampah said.

Ghana’s economy is expected to pick up speed this year, even as the government abides by IMF-set spending limits, and Wampah said the bank had begun its zero financing of the budget deficit limit placed on it under the aid deal.

The country is preparing to hold presidential and parliamentary elections in November which are expected to produce a tight race between President John Mahama and Nana Akufo Addo of the main opposition New Patriotic Party, partly due to economic concerns.

 

(Reporting by Kwasi Kpodo; Editing by Edward McAllister and Dominic Evans)

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