Africa Markets Insider: Zambia and Namibia’s Interest Rate Decisions and African Dollar Bonds

Economics: What you need to know

Zambia: Zambia has joined Mozambique in being the only two countries to hike interest rates this year. The Zambia MPC cited the 50bp hike to 8.5% as a delicate balance between supporting economic growth and fighting rising price pressures. Despite this hike, we see inflationary pressures increasing on account of rising oil prices and exchange rate weakness, particularly against the rand. After this unexpected hike, we forecast that the central bank will hold rates, at least for the next meeting, as it assesses the impact of this modest 50bp increase.

Namibia: Unlike Zambia, the Bank of Namibia kept its benchmark rate on hold at 3.75%. The decision follows that of South Africa, which maintained its benchmark rate last month, with both central banks citing the need for financial conditions to remain supportive of the nascent economic recovery. For the rest of the year, we expect the interest rate to remain unchanged. The BoN will be concerned about ensuring that reserve levels do not fall sharply and thus we expect commentary from the MPC to focus more on foreign reserve levels during 2021. Furthermore, we expect attention to be on growth as the main objective of monetary policy as each quarterly growth figure will be a key indicator.

Figure 1: Namibia and Zambia benchmark rates

Financial markets: What you need to know

African bonds: At the beginning of the year (see our note titled Africa FI Insight: Eurobonds investment thesis – High-yielding, low-duration, oil-exposure strategy), we noted that the rise in US inflation would be negative for African dollar bonds and suggested going underweight duration. Yesterday, this theme was at play as US 10-year treasuries reached an intra-day high of 1.33%, resulting in duration losses across the African dollar bond complex. Ghana stood out as the biggest loser as its long-end bonds took a 20bp knock on the day, which was unsurprising given the palpable expectation of new supply.


Source: RMB Markets, Bloomberg