Financial markets across sub-Saharan Africa have struggled and have underperformed their emerging market peers since the global banking sector turmoil erupted, Capital Economics has said.
The London-based economic research firm said that amid broad risk-off sentiment, African sovereign dollar bonds have sold off nearly across the board and equities were down in much of the region too.
“Currencies have not been spared either, weakening against the US dollar almost without exception. And currency concerns will probably contribute to the hawkish mood among the region’s central banks for the time being,” it said in a new report on Thursday.
The firm said central banks in Kenya and South Africa will follow in the footsteps of the Central Bank of Nigeria by raising their benchmark interest rates this month.
“Nigeria’s economy appears to be on a dual track with the key oil sector picking up but the non-oil economy faltering. Bungled demonetisation efforts creating widespread cash shortages have disrupted activity in the latter,” Capital Economics said.
“We suspect that recent elections, which saw Bola Tinubu become President-elect, will not mark a meaningful shift from current unorthodox policymaking.”
The firm said that in South Africa, the headline inflation rate rose unexpectedly and it expects that the Reserve Bank will deliver another interest rate hike this month in response.
“Despite ongoing loadshedding, economic activity picked up slightly in January following a large decline in GDP in Q4. The tentative recovery may give MPC members space to tighten policy,” it added.
Capital Economics said the fortunes of Angola’s key oil sector seemed to be shifting in an unfavourable direction. “But at least, softening price pressures and easing monetary policy will provide some support.”
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It said recent indicators suggested that the outlook for Kenya’s economy was getting much more challenging. “Policymakers’ efforts to tackle large twin deficits and high inflation are weighing on output.”
The firm said Ghana’s sovereign debt problems continued to hang over the outlook, even as the worst effects of the crisis on the real economy seemed to be fading.
The United States’ banking sector has been in turmoil after regulators on March 10 closed Silicon Valley Bank in the largest US bank failure since the 2008 financial crisis.
The collapse of the Santa Clara, California-based bank and Signature Bank, another US midsized lender, prompted a rout in banking stocks as investors worried about other ticking bombs in the banking system and led to UBS Group AG’s takeover of 167-year-old Credit Suisse Group AG to avert a wider crisis, according to Reuters.