African Central Banks Tighten Policy Rates to Counter Inflation



South African Reserve Bank raises key rate by 25 basis points

The South African Reserve Bank (or SARB) increased policy rates by 25 basis points to 7.0% on March 17, 2016, as Governor Lesetja Kganyago expressed concern over the recent sluggish economic growth in South Africa. As a commodity currency, the rand has been under pressure as a slowdown in demand has engulfed the Chinese economy, weighing on precious metal prices and essential commodities.

The inflation rate also breached the 6% cap of the SARB to rise to 6.2% in January, creating pressure on the central bank to raise interest rates. Currently, rating agencies Standard and Poor’s and Fitch Ratings have kept the credit rating for South Africa’s sovereign debt at one level above junk status.

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Central Bank of Egypt increases policy rates by 150 basis points

The Central Bank of Egypt raised its key interest rates by 150 basis points on March 17, 2016, after devaluing the Egyptian pound by more than 13% earlier this week. The Monetary Policy Committee (or MPC) increased overnight deposit rates to 10.75% from the earlier level of 9.25%. The overnight lending rate was also hiked from 10.25% to 11.75%.

Key rates were increased by 50 basis points earlier in December 2015, as the Central Bank of Egypt stated it would adopt a more flexible stance in monetary policy decisions going forward. In February 2016, inflation levels in Egypt eased to 9.1% from 10.1% in January.

Market impact

Following the rate hikes by the African central banks, exchange-traded funds were showing positive momentum. The iShares MSCI South Africa ETF (EZA) rose by 4.4% on March 17, 2016. The VanEck Vectors Egypt ETF (EGPT) rose by 3.2% at 2:00 PM EDT. On a broad basis, the iShares MSCI Emerging Markets ETF (EEM) was seen rising by 2.2%.

The South African mining ADRs (American depositary receipts) were trading on a positive note. Sibanye Gold (SBGL) rose by 1.7%. Sasol (SSL) and Harmony Gold Mining Company (HMY) also traded higher by 2.1% and 3.2%, respectively.


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