Fed gives African central banks reprieve to hold rates

African policy makers worried that the U.S. Federal Reserve’s liftoff will roil their markets even further, have room to breathe for now.

Central banks across Africa have bucked a global trend by tightening monetary policy to ward off inflation threats as their currencies slumped against the dollar.

For South Africa, Nigeria and Kenya — three of the four biggest economies in sub-Saharan Africa that will decide on interest rates this week — the Fed’s decision to delay raising borrowing costs gives them a temporary reprieve.

“We should see less hawkish monetary policy committees next week, particularly in the countries where the currencies have come under pressure,” Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said by phone on Sept. 18.

From Ghana to Zambia, African currencies have been among the worst hit by a slide in investor sentiment toward emerging and frontier markets. The prospect of higher U.S. interest rates is driving investors away from riskier assets at the same time as a slowdown in China fuels a slump in global commodity prices.

In South Africa, where the rand has weakened 14 percent against the dollar this year, the central bank has raised the benchmark interest rate twice since July last year even as the economy risks falling into recession for the first time since 2009. Eighteen of 20 economists surveyed by Bloomberg forecast the Reserve Bank will leave the key rate unchanged at 6 percent on Sept. 23, with two predicting a 25 basis-point increase.

“Following the Fed’s decision to hold back, I think the most probable outcome for our MPC would also be unchanged interest rates,” Elize Kruger, an economist at KADD Capital in Johannesburg, said in an e-mailed note to clients. This is “predominantly due to the deteriorating local economic outlook and lower oil prices.”

The rand fell 1.1 percent to 13.4769 against the dollar as of 5:56 p.m. in Johannesburg on Monday.

Investors have pared back bets of higher borrowing costs in South Africa this year, with forward-rate agreements starting in three months, used to speculate on interest rates in the period, pricing in 20 basis points of increases, down from 45 basis points on Aug. 24.

Yields on rand-denominated government bonds due December 2026 climbed nine basis points this year to 8.35 percent on Sept. 18. Yields on Kenya shilling bonds due October 2024 rose 80 basis points this year to 12.8 percent on Sept. 18, while in Nigeria, rates on naira debt maturing in March 2024 rose 48 basis points to 15.61 percent. That compares with a drop of 19 basis points to 4.83 percent in average yields on the Bloomberg Emerging Market Local Sovereign Index.

Nigeria and Kenya, which are due to announce rate decisions on Tuesday, are set to keep their benchmark rates at 13 percent and 11.5 percent respectively, according to most of the economists surveyed by Bloomberg. The Kenyan shilling has slumped 14 percent against the dollar this year, prompting the central bank to raise borrowing costs by 300 basis points since June.