Market turmoil unsettles central banks in Africa

Central banks around Africa - poised to reveal their first response to the emerging-market turmoil of the past month - are likely to usher in an end to the continent’s easing cycle.

There is a week to go before the US Federal Reserve delivers what could be its third interest rate increase of the year.

Currency weakness from the wider market sell-off preceding that move and a pickup in inflation may persuade officials to freeze borrowing costs - and in some cases even start to talk about tightening.

Central bankers in Nigeria, Ghana and Kenya are likely to keep key rates unchanged at their meetings next week. Today, South African officials are seen by some economists as open to a potential hike.

Russia raised its key rate by 25 basis points, while Turkish regulators increased the rate by 625 basis points.

“We are slowly seeing the effects of recent emerging-market events in the rest of Africa,” Celeste Fauconnier, an analyst at FirstRand’s Rand Merchant Bank unit, said.

“It’s safe to say the cutting trend in most of Africa is over. We’re unlikely to see a reaction like that of Turkey and Russia, but the chances of further rate cuts are very slim.”

Here is a round-up of what the continent’s central bankers are dealing with.

In South Africa, the rand has lost 11 per cent against the dollar since the start of August, pushing inflation expectations to a three-month high. The Reserve Bank has to balance its goal of anchoring price growth close to 4.5 per cent with the needs of an economy that fell into a recession in the second quarter. The inflation rate reached a 10-month high of 5.1 per cent in July.

For Ghana, tax measures announced in July add to price pressure that was caused by the cedi’s weakness. While inflation remains inside the central bank’s target band, it has picked up from the low it reached in April.

The currency’s drop has big consequences for inflation and it is “not certain how long this will persist and how the cedi will end the year,” said Courage Boti, an Accra-based economist at Databank Group.

While Kenya’s Monetary Policy Committee has said there is room for a more accommodative stance, price pressures due to the introduction of a tax on fuel and the decision by lawmakers to not repeal a law capping commercial borrowing costs may temper this.