At least 11 African central banks are due to announce interest-rate decisions over the next three weeks, with expectations shifting after renewed hostilities between the United States and Iran led to another disruption in shipping through the Strait of Hormuz earlier this month, sending oil and fertilizer prices higher.
The development poses a fresh challenge for policymakers who had begun to see inflation ease after years of aggressive monetary tightening.
The Strait of Hormuz is one of the world’s most important energy chokepoints, carrying around a fifth of global oil supplies. Any disruption to traffic through the waterway typically pushes up crude prices, increasing fuel, transport and production costs worldwide.
For many African economies that rely heavily on imported petroleum products, higher global oil prices quickly translate into increased inflation.
Countries including Kenya, Morocco, Rwanda, Senegal, Uganda and Côte d’Ivoire are particularly exposed because they import most of their fuel needs.
Higher-for-longer interest rates
Central banks across the continent are now expected to maintain a cautious stance despite signs that inflation had begun to moderate in several economies.
Keeping borrowing costs elevated helps contain inflation expectations, support domestic currencies and limit capital outflows. Cutting rates prematurely could weaken local currencies and make imported goods even more expensive.
Oil-exporting countries such as Nigeria, Angola, Algeria and Libya could benefit from stronger crude prices through higher export revenues. However, the gains may be tempered by domestic inflationary pressures, especially in economies that still import refined fuel or remain vulnerable to exchange-rate volatility.
The renewed rise in fertilizer prices is also likely to increase agricultural production costs, raising the risk of higher food prices across several African countries in the months ahead.
Source: Africabusinessinsider