Many African central banks are expected to lower interest rates in the next three weeks, mindful that the opportunity to ease further may be limited once Donald Trump assumes the U.S. presidency.
Among the 14 central banks set to make decisions, eight, including those of South Africa and Kenya, are likely to reduce rates, while five are expected to maintain their current levels. Nigeria, however, is predicted to raise rates.
While domestic factors will influence these decisions, the outcome of Trump’s November 5 election win is hard to overlook. His policies, such as increased tariffs and a larger U.S. budget deficit, have caused turbulence in emerging markets, with investors speculating that these could lead to a stronger U.S. dollar and higher interest rates in the U.S.
EY Africa Chief Economist, Angelika Goliger, explained that these policies could be inflationary, limiting the ability of African central banks to cut rates in the future. A stronger dollar could make imports and dollar-denominated debt more costly for African nations. Moreover, rising U.S. interest rates could draw investment away from emerging markets, compelling central banks to raise borrowing costs to protect their local currencies.
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The impact of Trump’s election win has already been felt, with some emerging market currencies depreciating by up to 5 percent, increasing inflationary pressures, said Yvonne Mhango, Africa economist at Bloomberg Economics. This is expected to make African central banks less inclined to ease monetary policy in the near future.
Countries such as Angola, the Democratic Republic of Congo, Egypt, and Ghana are likely to leave rates unchanged, grappling with double-digit inflation and concerns about the stronger dollar. Botswana, with one of the lowest inflation rates in Africa at 1.6 percent, is also expected to keep rates steady, anticipating higher price pressures as the economy recovers from a slump in diamond prices and the stronger dollar.
In Nigeria, policymakers are expected to raise rates on November 26 in an effort to curb inflation, which is being fueled by rising gasoline prices, a weakened currency, and recent floods. The country has already increased rates significantly, from 11.5 percent to 27.25 percent in just over two years, with plans to continue tightening until inflation is under control.
In South Africa, where inflation is expected to have eased in October, the central bank’s monetary policy committee is anticipated to cautiously reduce the benchmark rate by 25 basis points to 7.75 percent. Concerns over the rand’s recent weakness, which has dropped nearly 2 percent since Trump’s victory, are likely to influence this decision.
Similarly, countries like Eswatini, Lesotho, and Namibia, whose currencies are pegged to the rand, are also expected to cut rates by a quarter point. Kenya, Gambia, Rwanda, and Mozambique, where inflation is slowing or already low, are anticipated to follow suit with rate reductions.
