Feb 9, 2023

Mawazo Writing Africa

Writing about the main

Eyes on EA central banks as continent’s big economies raise their lending rates

East Africans are watching their central banks as inflationary pressures urge major economies across the continent and around the world to raise lending rates.

Nigeria, South Africa, Egypt and Ghana recently lowered their central bank rates, citing elevated interest rates heighten the need to foster macroeconomic stability.

Lending rate

This comes barely a month after the US raised its central bank rate from 0.5% to 1% – the highest in over 20 years – citing the need to combat soaring commodity prices.

The UK, India, the United Arab Emirates, Mexico, Canada, Australia and New Zealand are other developed economies that have seen in the past interest rates have been raising for the month due to rising commodity prices.

But Tatonga Rusike, a sub-Saharan African economist at Bank of America, told Bloomberg that some af Rican economies like Zambia and Kenya are likely to keep their benchmark interest rates unchanged as inflation rates in those countries show signs of slowing.

US Effect

Kenyan economist Kwame Owino told < this week em>The EastAfrican that Kenya could hold interest rates at 7 percent on May 30 when the central bank’s monetary policy committee meets.

Experts say higher central bank interest rates in the US will definitely have an impact on African economies already struggling with inflation, depreciating currencies and mounting debt burdens.

Mr Owino, CEO of the Institute of Economic Affairs of Kenya, said debt servicing for countries with up Dollar-denominated loans would prove more expensive.

“The US dollar is expected to appreciate against other currencies, which will make imports to countries in the region more expensive,” Owino said.

The Four major African countries that recently raised interest rates cited inflationary pressures, begging the question: what will East African central banks do differently given these challenges are sweeping across borders? World?

Central bank interest rates have remained stable across the region over time, but some economists are now saying upward revisions may be inevitable given the global monetary environment and ongoing economic shocks; otherwise they would suffer a recession or massive capital flight.

The National Bank of Rwanda raised its interest rate to 5 percent in February, but kept it on hold during the last monetary policy review on May 12. A review is expected again in August.

Read:Rwanda’s central bank will keep interest rates to curb inflation

The Bank of Uganda will Interest rate expected to review on June 16, having held it at 6.5 percent at the last review on April 12, after being cut from seven percent in December 2021.

The Bank of Tanzania kept their rate at the last review was also five percent at Marsch. The interest rate has been stable since mid-2020 but is expected to be reviewed soon.

In Kenya, the Monetary Review Committee left the CBR at 7 percent on March 29, a rate maintained since 2020.

Prevailing uncertainty

History shows that East African countries are more inclined to lower interest rates than to raise them, but given the prevailing economic conditions there is no certainty that this trend will continue .

According to Mr. Owino, it is more economically viable for the region’s central banks to maintain or lower their interest rates rather than raise them because the economic environment in the region is “different”.

< p>“An increase in interest rates will have a negligible impact on inflation rates since, unlike in the US, the rise in commodity prices in the region is mainly due to external shocks leading to currency depreciation,” Owin said o.

“The US is simply trying to reverse the effects of its release of too much money into the economy omy during the Covid-19 pandemic, which has in part led to its inflation.

“Nigeria and Ghana are also net exporters of oil and food, and their rising inflation is negligible owing to external shocks.”

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If East African central banks raise interest rates, it will discourage commercial banks from providing private individuals and Lending to businesses, which will make borrowing costs more expensive.

“Across the region, central bank interest rates are already too high. If you raise it, it becomes too expensive to borrow,” Mr. Owino said.