By Olivia Kumwenda-Mtambo

PRETORIA (Reuters) – South Africa’s central bank kept interest rates unchanged at 7 percent for a third consecutive time this year on Thursday, with a weak economic growth outlook balancing out concerns about inflation.

The Reserve Bank said the growth outlook remained constrained, but revised upwards its forecast for this year to 0.4 percent growth having previously said the economy would remain at a standstill.

In response to the decision to keep rates steady, the rand surrendered gains driven by the U.S. Federal Reserve’s call to hold rates. The rand traded at 13.5525 per dollar by 1445 GMT, from a session high of 13.3775.

The government’s benchmark 2026 bond firmed to its best since Aug. 19.

In a Reuters poll, 24 of 28 economists expected the rate to remain unchanged, while the rest forecast a 25-basis-point hike.

“Given improvements in the inflation forecast, the weak domestic economic outlook and the assessment of the balance of risks, the MPC has unanimously decided to keep the repurchase rate unchanged,” Governor Lesetja Kganyago told reporters.

“The MPC is of the view that should current forecasts transpire, we may be close to the end of the tightening cycle.”

Kganyago said the MPC’s decision was unanimous, and a rate cut was not discussed at the meeting.

Inflation is expected to average 6.4 percent this year, slightly down from an earlier forecast of 6.6 percent, the central bank said. The target range is 3-6 percent and inflation now stands at 5.9 percent.

Kganyago, however, said the MPC was still concerned about the overall inflation trajectory.

The bank has hiked the benchmark repo rate by a cumulative 200 basis points since the start of 2014 to rein in rising inflation, with the last hike implemented in March.

“There will be much interest in where South Africa stands with its tightening cycle, given the tepid growth outlook,” said Razia Khan, Standard Chartered Bank’s chief Africa economist.

“One factor is clear however – with inflation improving but still forecast to remain near the upper end of the target 3-6 percent band in the coming years, it would be too premature to call for easing.”

Capital Economics Africa Economist John Ashbourne said rates were no longer likely to be hiked later this year. The bank will hold its final rate call for the year in November.

“The MPC statement, however, was more dovish than we had expected,” Ashbourne said in a note.

“This was the first meeting at which the governor hinted that South Africa’s tightening cycle … is nearing its end.”

(Additional reporting by the Johannesburg bureau; Editing by James Macharia and Andrew Roche)

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By George Obulutsa

NAIROBI (Reuters) – Kenya’s commercial banks may stop lending to borrowers they consider risky now that the government has capped commercial lending rates and the central bank has cut the benchmark interest rate, the central bank governor said Wednesday.

The remarks by Patrick Njoroge were one of the first indicators of how the new limit on lending rates, which came into force last week, may affect the country’s banks.

“Those risky borrowers who are at the margins may be cut off from borrowing. It’s unclear which way this will go. We haven’t done it before,” Njoroge said at a news conference.

The cap – 400 basis points above the central bank rate, now 10.0 percent – is intended to spur personal and corporate investment by holding down interest rates.

Banks opposed the cap before it was signed into law, arguing that they needed high interest income to offset the risks of lending in one of Africa’s biggest frontier markets.

Njoroge said some banks were already seeking alternative ways to invest their money.

“Once the law was signed, some banks tried to move their assets to government securities. But remember that is not an open door. There is a supply constraint,” he said.

On Tuesday, the central bank cut its key lending rate by half a percentage point, or 50 basis points, to 10 percent, in a bid to spur credit growth.

“Existing borrowers will benefit, because their rates will come down by that amount,” Njoroge said.

The growth of private-sector credit dropped to 7.1 percent in July of this year from 17.8 percent in December of last year, the governor said. Private-sector credit growth should be in the region of 12 to 15 percent, he added.

Non-performing loans as a proportion of total loans rose to 9.3 percent in August from 8.4 percent in June and from 5.7 percent in December, due partly to stricter reporting of bad debt and partly to the slower growth in private-sector lending.

“There is some increase, which is related to lethargic growth in private-sector credit. When credit growth is rising quickly, NPL to gross loans falls, because you are getting better and better gross loans,” Njoroge said.

(Editing by Duncan Miriri, Larry King)

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By Chijioke Ohuocha and Alexis Akwagyiram

LAGOS (Reuters) – Nigeria’s central bank should lower interest rates so that the government can borrow domestically to boost the economy, which is stuck in recession, without increasing its debt-servicing costs, the country’s finance minister said on Monday.

The government also planned an “immediate large injection of funds” though asset sales, advance payments for license renewals and infrastructure concessions, its budget minister said.

Finance Minister Kemi Adeosun said she is working with the debt office, Nigeria’s sovereign wealth fund and the pension industry to issue an infrastructure bond to raise money for road and housing projects. She did not elaborate.

She said she wanted the central bank to reconsider its July interest rate increase, which it implemented to help support the naira and attract foreign investment.

The central bank, which is independent of the government, is due to announce its next rate decision on Tuesday. Economists polled by Reuters last week predicted that the central bank would keep its key interest rate at 14 percent and reiterate its focus on resuscitating the economy.

“We need lower interest rates, because when we are borrowing and interest rates go up, it increases our cost of debt service and it reduces the amount of money that is available to spend on capital projects,” Adeosun told CNBC Africa.

“The attempt was to manage inflation and the trade-off for the economy right now is what is a bigger problem: Is it growth or inflation? For me it is growth. I would rather seek growth. We can manage inflation. I think for us, at the moment in the Nigerian economy, growth is the most important thing.”

Africa’s biggest economy slid into recession for the first time in more than 20 years in the second quarter. The naira was quoted at a record low of 425 per dollar on the black market on Monday, which it touched last week as chronic hard currency shortages continued to hurt businesses.

Budget Minister Udoma Udo Udoma told a business conference the government planned asset sales to inject more funds into the economy but gave no details. The government has spent almost 800 billion naira ($2.54 billion) on capital expenditures since the budget got approved in May, officials have said.

He also said the government had almost finished preparing a bill asking parliament for emergency legislation powers to improve the business climate.

Adeosun said some adjustment was needed to narrow the spread between the official and black market currency rates, which is running at 25 percent since the central bank floated the naira.

“We still need to make some necessary adjustment to ensure that the spread is narrow, so that we have true price discovery,” she said.

($1 = 315.0000 naira)

(Additional reporting by Felix Onuah and Oludare Mayowa; Writing by Chijioke Ohuocha and Ulf Laessing; Editing by Larry King)

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By Fumbuka Ng’wanakilala

DAR ES SALAAM (Reuters) – Tanzania’s economy is on track to expand by 7.2 percent in 2016, up from 7 percent in 2015, boosted by construction, an anti-corruption drive and better management of public resources, the central bank governor said on Wednesday.

President John Magufuli, elected last year, has launched a campaign against corruption and government waste, and promised to improve transport links and other infrastructure.

The International Monetary Fund told Tanzania in July to curb public spending, which has risen on the back of its infrastructure plans, and urged the government to implement structural reforms.

“Economic growth this year will be boosted by the government’s ongoing efforts to tackle corruption, strengthen the management of public resources and construction of infrastructure as part of the country’s industrialisation plan,” Bank of Tanzania Governor Benno Ndulu told a news conference.

Ndulu also said the shilling had been steady in the first half of 2016 thanks to growing exports of goods and services and a slide in import costs, largely due to weaker global oil prices.

The governor said the shilling had traded in a range of 2,180 to 2,190 to the dollar in the first six months of 2016. At 1257 GMT on Wednesday, banks quoted the shilling at 2,177.

“We expect the shilling to remain stable for the rest of the year,” he said, adding that inflation was expected to remain in single digits in line with the government’s mid-term target of 5 percent. It was 4.9 percent in the year to August.

(Writing by Edmund Blair; Editing by Robin Pomeroy and Hugh Lawson)

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By Mfuneko Toyana and Olivia Kumwenda-Mtambo

JOHANNESBURG (Reuters) – South Africa’s current account deficit narrowed more than expected in the second quarter, data showed on Tuesday, supporting Finance Minister Pravin Gordhan’s view that Africa’s most industrialised economy was not in “recession territory”.

South Africa has a better than 50 percent chance of avoiding a downgrade of its credit rating to “junk” status this year, Gordhan told business leaders in Johannesburg on Tuesday. He also pledged to stick to deficit targets set out in his budget in February, despite weak economic growth.

He warned, however, that surprising economic growth of 3.3 percent in the second quarter could not be sustained and pledged continued fiscal prudence, a key recommendation by ratings agencies.

“The next year or so is quite critical, not just for ratings but for ourselves as an economy and as a country as well,” Gordhan told business leaders.

South Africa’s current account deficit narrowed to 3.1 percent of GDP in the second quarter, better than the 3.6 percent predicted by analysts and down from 5.3 percent in the first quarter.

“The recent data has certainly reduced the chances of a downgrade. It’s gone from more or less inevitable to being a possibility,” said John Ashbourne, Africa analyst at Capital Economics.

The rand pared losses after the data were released. It had dropped as much as 1 percent in early trade, following a warning by Deputy Finance Minister Mcebisi Jonas that a police investigation into Gordhan was causing economic uncertainty.

Gordhan declined last month to obey a police summons linked to the inquiry into whether he had used a tax service unit to spy on politicians, including President Jacob Zuma. Gordhan said he had done nothing wrong and his supporters have called the investigation a witch hunt.

Divisions within the African National Congress have widened since the ruling party suffered its worst-ever local election results last month. Analysts say the rifts result from a power struggle between Zuma and Gordhan.

Zuma is due to appear in parliament at 2 p.m. (1200 GMT), where he expected to be questioned about alleged rifts with Gordhan and his relationship with the Guptas, a wealthy family.

“It does destabilise, not only Treasury, it creates uncertainties across the economy,” Jonas told 702 Talk Radio. “We feel confident there is no basis for the allegation. We are not worried about that.”

Jonas also said he had met Public Protector Thuli Madonsela, an anti-corruption watchdog, as part of her inquiry into whether the Guptas have been influencing high-level political appointments.

Jonas dropped a political bombshell earlier this year when he said the Gupta family offered to secure him his boss’s job.

Zuma has said that the Guptas are his friends but denies doing anything improper. The Guptas have also denied making job offers to anyone in government.

(Writing by Joe Brock; Editing by Larry King)

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JOHANNESBURG (Reuters) – South Africa-based retail group Steinhoff reported a 3 percent decline in its earnings per share on Wednesday, weighed down by an increased number of shares and the weaker rand currency.

Steinhoff, which has been seeking to expand abroad with a series of acquisitions, the latest being the offers to buy U.S. bedding retailer Mattress Firm and Britain’s Poundland, said diluted adjusted EPS came in at 29.5 euro cents in the year ended June, down from 30.3 cents the previous year.

Adjusted EPS strips out certain one off, non-trading items and is a required performance measure by the Johannesburg Stock Exchange, where Steinhoff has a secondary listing.

Steinhoff funded its 2014 purchase of Africa’s no-frills clothes retailer Pepkor with cash and shares, while the result was also affected by weaker exchange rates, with the rand depreciating by 17 percent during the period.

Since moving its primary listing to the Frankfurt Stock Exchange in December last year, Steinhoff has been looking to expand its businesses abroad at a time when consumers are turning to cheaper chains and its home market is struggling.

Steinhoff is close to securing an $800 million takeover of British discount retailer Poundland, with shareholders due to vote on the deal later on Wednesday.

Meanwhile its $3.8 billion offer for the United States’ largest bedding retailer Mattress Firm already has the backing of the board and the Texas-based company’s biggest shareholder, JW Childs.

“Steinhoff continues to see opportunities for growth within our key markets in the territories where the group operates,” said Chief Executive Markus Jooste.

(Reporting by Tiisetso Motsoeneng; Editing by Ed Cropley, Greg Mahlich)

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