Ghana cuts interest rates; Nigeria, S.Africa, Kenya expected to keep rates on hold

The Bank of Ghana will extend its interest rate-easing cycle on Monday to give its economy a boost but other major African central banks will keep rates stable after a commodity price slump, a Reuters poll found.

Ghana’s central bank cut its high prime rate by 200 basis points to 23.5 percent in March and is expected to chop another 100 basis points on Monday, according to the median forecasts of analysts polled this week.

The poll also suggested Ghana will have cut its benchmark rate to 20 percent by the end of this year and to 17 percent by end-2018.

Cobus de Hart at NKC African Economics said that even though Ghana is in an easing cycle, it was worth noting interest rates remain very high compared to some other more developed African countries.

Rates in Ghana are also starkly higher than those in the world’s biggest economy, where the United States Federal Reserve is expected to make another 25 basis point hike in the second quarter and a follow-up increase in the third, taking the fed funds rate to a range of 1.25 to 1.50 percent.

“Although Ghana is not out of the woods just yet, the country has made some progress with rectifying macroeconomic imbalances,” added De Hart.

Still, the International Monetary Fund has suggested to Ghana’s government it request an extension to a three-year $918 million aid programme due to end in April 2018.


Major African peers – including Nigeria, currently battling a dollar shortage, and South Africa, with its credit rating recently downgraded to “junk status” – will hold rates next week.

Kenya – facing elections in August – is expected to hold rates stable at its May 29 meeting.

Gaimin Nonyane, head of economic research at Ecobank, said Nigeria would hold its monetary policy rate (MPR) at 14 percent on May 23 to balance the effect of ongoing fragility of the country’s recovery and elevated inflation.

“Instead of using the MPR, the central bank appears to be focusing on the use of open market operations in providing a signal to the market. This is reducing naira liquidity and the risk of currency speculation,” she added.

Nigeria sold $100 million on Monday at a special wholesale spot and forwards auction in a bid to improve dollar liquidity in the market and narrow the spread between official and black market rates, local media reported.

Nigeria is expected to cut interest 200 basis points from rates next year, setting then at 12 percent by end-2018.

Analysts in previous polls have argued Nigeria needs to liberalise its naira but are sceptical authorities will fully relinquish control over the currency, and a gap between the official and black market could be a permanent feature.

Down in the south of the continent, dollar shortages are not a problem for South Africa’s heavily traded rand. However, the possibility of rate cuts is fizzling out as the currency is at risk of being downgraded in the medium term.

South Africa’s repo rate is expected to remain on hold at 7.0 percent on Thursday and remain at that level until at least 2020.

The poll suggested the Central Bank of Kenya will hold rates at 10 percent on May 29 and in the run-up to and months after elections due in August, despite rising inflation that appears to be supply-driven, Nonyane said.

However, it will kick off its rate-easing cycle with a 50 basis points cut in the first three months of next year, followed by same margin again in the third quarter.

(Editing by Mark Heinrich)

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