For the better part of 2019, trends in global monetary policy have titled majorly towards an accommodative stance, as policy decision-makers quantify the impact of geopolitical tensions, trade disputes and weakening growth across borders. Recently, the European Central Bank (ECB) bowed to pressures of a consistently weak EU growth, cutting its deposit rate to -0.5%, from -0.4% and resuming quantitative easing measures. As the world economy comes to terms with the regime of increasing dovish actions, emerging markets are caught between two major choices, join the easing bandwagon to stimulate growth, or keep interest rates high to attract foreign capital.
In the last two months, Central Banks across the major African economies seem to have chosen the former option, using the opportunity to address growth challenges and reduce the burden of high debt servicing cost. Notably, while Nigeria decided to keep its key policy rate unchanged at the Jul-19 meeting, its fellow economic giants, South Africa and Egypt slashed rates by 25bps and 150bps respectively. Also, other economies such as Botswana (-25bps), Mozambique (-50bps), Namibia (-25bps) and Mauritius (-15bps) followed in the dovish tune.
Yet, the role of fiscal stimulus cannot be overemphasized. Without policy reforms to address infrastructural deficits, spur consumer spending, driving value-added production and manufacturing, the use of only monetary policy will be ineffective – like driving a car with no steering.
United Capital Research