Nigeria and South Africa kick off Africa's 2023 Central Bank meetings

Africa’s two largest economies, Nigeria (GDP size $440.0 billion) and South Africa (GDP size $419.0 billion), convened their first monetary policy committee meetings for 2023 in the week between Jan 23rd and 27th. Both the Central Bank of Nigeria and the Reserve Bank of South Africa tightened their benchmark rates with the former hiking it by 100.0 bps to 17.5% whilst the latter raised its rate by 25.0 bps to 17.5%. ?

Here are some thoughts about the latest policy stance:

·?????Run-away cost of living remains front and centre of policy makers concern despite indication that headline inflation is poised to soften in 2023 after rapidly escalating in 2022. This is in line with our forecast at the end of 2022 that whereas inflation pressures are broadly expected to taper off in 2023, the chances are that across the region inflation will remain in double digits. You can find our earlier thoughts on this through this link. We maintain our forecast that inflation in SSA is likely to average anything in the 10.0% - 11.5% band in 2023, down from the average 14.5% in 2022

·?????Policy makers are wary of further build up in foreign exchange pressures especially for economies that face considerable debt service obligations in 2023. In Nigeria’s case in particular, external reserves closed 2022 at $36.9 billion down from $39.98 billion at the start of the year. The decline in Nigeria’s reserves points to heightened demand for hard currency locally as well as slow accretion of inflows. Nigeria faces a $500 million bullet payment in July 2023. In this article, we fleshed out the monetary environment that Nigeria's central bank confronts amidst high inflation and the weakening Naira

·??????We anticipate further, albeit less aggressive, tightening within H12023 for both Nigeria and South Africa with policy makers keen to help anchor inflation expectations especially in Nigeria's case where the headline figure has defied the prescribed ceiling for seven years. Policy makers will be hard pressed to guide inflation back to desired target bands with Russia-Ukraine war triggered pressures still piling upward pressure on food inflation.?Demand side pressures on inflation remains largely muted and afford policy makers a sigh even as prolonged tightening now risks dampening the post-COVID19 economic rebound that characterised 2021 and 2022