The Head of Africa Research Report at Standard Bank Group, Mr Jibran Qureishi, has stated that the Monetary Policy rates are tighter in most Africa countries than implicitly suggested.

According to Jibran Qureishi, Central Banks in several African nations are likely to overlook quickening inflation and keep interest rates on hold at least until the third quarter of next year. This is because higher money-market yields suggest price-growth expectations remain anchored.

“Monetary policy is tighter than implicitly suggested by conventional rates across the African continent”
Jibran Qureishi

A recent Standard Bank Group’s report that focused on 18 African countries found that most African central banks have kept their policy rates unchanged this year. This is meanly on concerns about economic growth.

Nevertheless, Zambia, Mozambique and Zimbabwe have tightened their policy rates, while Ghana and the Democratic Republic of Congo cut rates.

Monetary Policy in some African countries

Meanwhile, Analysts revealed that, though monetary policy has been dovish in Nigeria and Tanzania, yields at the short end of the curve have risen. This may be as a result of a rising inflation expectations. In addition, this could be an indication that the financial market expects higher future interest rates.

Furthermore, in Zambia for instance, the Monetary Policy Committee surprisingly increased the policy rate by 50 basis points in February. As a result, yields across the curve has been steady. This development, according to experts, suggest that the central bank is playing “catch-up to an already tighter policy stance”.

This notwithstanding, the Governor of Zambia’s Central Bank, Christopher Mvunga, has cautioned that interest rates could go up further if inflation doesn’t come down.

Conversely, Ghana recently cut the monetary policy rate by 100 basis points, from 14.5% to 13.5%. The Governor of the Central Bank of Ghana, Ernest Addison, stated that the reason for the cut in the policy rate is to support the recovery of the economy.

Meanwhile, that was the first time since March 2020 that the Bank of Ghana has reduced its policy rate. Last year, the Central Bank of Ghana reduced the policy rate by 150 base points, from 16% to 14.5% as part of policy measures to cushion the economy.

Most countries likely to adopt neutral stance

According to the report, most Central Banks across the continent, except Zambia, are likely to adopt a neutral stance with an accommodative bias. Correspondingly, the report notes that most of these central banks could even allow price growth to rise beyond target.

Unlike in most advanced countries where policy rates are low, most developing countries, especially those in Africa still have higher rates. Most Central Banks use monetary policy tools to control money supply and achieve sustainable economic growth. One of such key tools is the monetary policy rate. Others include modification of the interest rate, buying or selling of government bonds and regulating foreign exchange rates.

Central Banks are however, cautious of adjusting their policy rates since such actions may have some repercussions on the economy if not well done. Most especially when foreign investors hold some of the bonds issued by African governments.