Monetary Policy in Africa: Shooting for growth


In the wake of the COVID-19 pandemic, global monetary policy authorities have launched several expansionary programs, to cushion the virus’ negative economic effect on growth. African economies were no different, as the pandemic posed a threat to decades of economic growth, which was formerly buoyed by capital inflows, favourable commodity prices and large aggregate demand.

Notably, the massive flood of monetary stimulus in developed markets created room for African economies to trim policy rates, amid the implication on foreign fund flows. This included notable regional economic giants; Egypt (-300bps), South Africa (-275bps), Ghana (-150bps), Kenya (-150bps) and Nigeria (-100bps). Also, the Central Bank of Egypt approved an EGP100.0bn package, to cover lending at preferential rates to the manufacturing, agriculture, and contracting loans. Similarly, the Central Bank of Nigeria launched a N1.1tn intervention fund to the manufacturing and healthcare sectors.

Elsewhere, the Central Bank of Kenya lowered banks’ cash reserve ratio by 100 bps to 4.25%. For the rest of the year, the current expansionary stance of African monetary authorities is unlikely to change. As a result, we expect policy decisions to be focused on guiding economies into recovery, as different countries lift restrictions and lockdowns placed due to the pandemic.

Top African Stories

• S.Africa’s bad debts may hit the highest ever level of 10% due to virus: South Africa’s bad debts could hit 10% of bank lending this year according to its banking association director, which would be the highest ever and well above the 6% seen during the 2008/9 financial crisis.

• West African ministers propose phased re-opening of borders: West African government ministers have proposed re-opening borders between their countries in the first half of July and allowing in travellers from other countries with low or controlled levels of coronavirus spread by the end of July.

• Zambia mining revenues drop 30% due to COVID-19, Chamber of Mines says: Mining companies in Zambia, Africa’s No.2 copper producer, have suffered a 30% drop in revenue over the three months to April due to the COVID-19 pandemic and the fallout could last for at least 12 months, the Chamber of Mines said on Thursday.

• Madagascar offers $73 mln of loans to help small businesses through pandemic: Madagascar has announced a stimulus package offering close to a million small businesses secure loans at below-market rates to help weather the impact of the coronavirus outbreak.

• China will exempt some African countries from repaying certain loans: China will exempt some African countries from repaying zero-interest-rate loans due at the end of 2020, state television reported on Wednesday, quoting President Xi Jinping’s speech at a summit.

• Egypt secures financing from AfDB to continue its solar growth ambition: Thirty international infrastructure developers got behind this project, investing in Egypt’s massive Benban solar park, which will be the largest in the world upon completion.

United Capital Research