African central banks expected to cut or hold interest rates before Trump presidency, except Nigeria

• African central banks are expected to either cut or hold interest rates
• The banks are adopting rate decisions ahead of Trump’s White House return
• Nigeria is, however, taking the opposite direction of interest rate hike

Given global economic challenges, many African central banks are tipped to cut interest rates as a monetary easing strategy.

This is unlike in Nigeria, where the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to further hike interest rates during its forthcoming 298th meeting, which is the last for the year, as a strategy to curb soaring inflation.

Eight of the 14 African monetary authorities scheduled to announce rate decisions within the next three weeks, including South Africa and Kenya, are expected to cut rates, five are anticipated to hold steady, while Nigeria is predicted to hike rates.

Adopting measures ahead of Trump’s White House return

The decision to either lower interest rates or hold steady by African central banks is predicated on the November 5 Donald Trump election victory. Trump’s return to the White House is already making an impact in the market and sending signals to emerging economies, as investors project that his policies could strengthen the US dollar and lead to higher US interest rates.

For African economies, a stronger US dollar will lead to an increase in the cost of imports and dollar-denominated debt. Also, higher US interest rates could also redirect capital flows away from emerging markets, compelling monetary authorities to raise borrowing costs to support local currencies.

According to Bloomberg, EY Africa Chief Economist Angelika Goliger noted that, with a Trump presidency, African central banks may face greater limitations on their ability to lower rates.

Goliger said, “Trump’s stated policies, such as increased tariffs and a larger US budget deficit, are likely to drive inflation and limit the ability of African central banks to cut interest rates in 2025.”

Yvonne Mhango, an African economist at Bloomberg Economics, said the Trump effect is already being felt in emerging markets as currencies have depreciated since Trump’s election victory.

Mhango said, “Emerging market currencies have depreciated by as much as five per cent since Donald Trump won the US election earlier this month, heightening inflationary risks.

“This will likely make African central banks that were easing less inclined to continue on that path.”

Interest rate position among countries

Due to concerns over double-digit inflation and the pressures of a stronger dollar, Angola, the Democratic Republic of Congo, Egypt and Ghana are expected to maintain their interest rates.

Also, Botswana, which has one of Africa’s lowest inflation rates at 1.6 per cent, is tipped to keep interest rates steady as it anticipates rising price pressures as the economy recovers from a prolonged downturn in diamond prices and dollar strength.

Nigeria’s MPC is expected to further hike the rates going by the committee’s penchant for raising borrowing costs as a go-to strategy to keep inflation at bay. In October, Nigeria’s inflation climbed to 33.88 per cent, rising by 1.18 per cent from the 32.70 per cent recorded in September. The inflationary pressures are driven by higher energy and food costs, a weak currency, and flooding that wreak havoc on most food-producing belts in the country.

In just over two years, Nigeria’s monetary authorities have increased interest rates from 11.5 per cent to 27.25 per cent. The rate has been increased five times so far in 2024 in keeping with the authorities’ tight monetary stance, which has implications for businesses and the broader economy.

These African countries are adopting a cut approach 

At the MPC meeting of the South African Reserve Bank on Thursday, November 21, the committee voted to cut interest rates by 25 basis points to 7.75 per cent following the slowdown in inflation to 2.8 per cent in October but cautioned that it would adopt a measured approach to risks.

The bank also lowered the country’s prime lending rate, which is used by commercial banks to set borrowing costs, by 0.25 percentage points to 11.25 per cent.

Reserve Bank governor, Lesetja Kganyago said, “I think 25 basis points is cautious because the environment is uncertain and calls for caution. Inflation in the US surprised by exceeding expectations and similarly in the UK. In the Euro area, wages are rising at their fastest rate since 2000. This highlights the uncertainty we face.”

Following in the steps of South Africa are central banks in Eswatini, Lesotho and Namibia, whose currencies are attached to the South African rand, which are also tipped to cut rates amid slowing inflation.

Countries like Kenya, Gambia, Rwanda and Mozambique, where inflation is either low or declining, are also expected to reduce rates.

Beyond increasing MPR, how else can CBN tame inflation?

Meanwhile, TheRadar reported that at its 296th Monetary Policy Committee (MPC) meeting, the Central Bank of Nigeria (CBN) increased the Monetary Policy Rate (MPR) by 50 basis points to 26.75 per cent from the May rate of 26.25 per cent to tame inflation.

TheRadar highlighted other ways the apex bank can tackle inflation beyond increasing interest rates, which some Nigerians describe as ‘textbook economics.’