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31 March 2010 | Business & Finance

Interest rates drop all across Africa

Daniel Nonor - Ghanaian Chronicle

Interest rates are falling across Africa — South Africa's fell to a 30-year low on Friday, when Rwanda also cut, following Kenya earlier this week — as states emerge from hard times well placed to chase growth.

Inflation risks have eased, giving space for added stimulus to accelerate the recovery from last year's global downturn.

Weak credit demand continues to stifle spending in some countries and indebted households remain a stumbling block for a return to previous robust expansion.

While rich economies slashed rates to close to zero, African central bank lending rates remain relatively high, some, such as Botswana and Ghana, in double-digits, partly due to the food and fuel shocks of 2008 that stoked inflation.

The South African Reserve Bank cut the repo rate by 50 basis points to 6.5 per cent on Thursday and Rwanda dropped its rate 50 basis points to 7 per cent. Kenya also unexpectedly cut its bank rate by 25 basis points to 6.75 per cent on Wednesday.

The Bank of Ghana, the central bank of West Africa's third biggest economy, slashed its main interest rate by 200 basis points to 16 per cent in February, exceeding expectations, and Nigeria halved its deposit rate to 1 per cent earlier in March.

Exit strategies “While the rest of the world mulls exit strategies, recent events have shown that Africa is still well and truly in the midst of an easing cycle,” Razia Khan, head of Africa research at Standard Chartered, said.

South Africa's cut takes the bank rate to its lowest level in 30 years, and follows a letter from Finance Minister Pravin Gordhan stressing the need to take growth more into account in policy decisions.

Inflation is slowing in most African countries, driven by lower food costs and aided by low risk from price pressures in advanced economies.

East Africa's biggest economy Kenya's central bank said downside risks to the economic recovery called for measures to support growth, singling out soft credit growth as a concern.

“The growth in loans during the period falls short of the perceived private sector demand,” the policy committee said.

Khan said the focus was clearly on spurring growth, to take advantage of better world conditions.

“Across Africa, there is a uniform picture in place —monetary authorities are going for growth,” she said.

Credits: Business Daily

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