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africagoodnews

Interest rates are falling across Africa - South Africa's fell to a 30-year low yesterday, 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. Africa emerged from the world downturn generally better than advanced economies and less stimulus during the crisis has allowed for more monetary policy loosening this year to spur a faster rebound.

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 percent on Thursday and Rwanda dropped its rate 50 basis points to 7 percent.

Kenya also unexpectedly cut its bank rate by 25 basis points to 6.75 percent 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 percent in February, exceeding expectations, and Nigeria halved its deposit rate to 1 percent earlier in March.

"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.

"Traditionally, Africa's growth cycle has lagged that of the global economy, and even though the transmission mechanism of the slowdown may have been more rapid in the most recent crisis, this still holds true overall."

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.

"There are clear signs that the economy has come out of recession, but the pace of recovery is likely to remain slow," Reserve Bank Governor Gill Marcus said in Pretoria after a two-day meeting.

"The improved inflation environment has provided some space for an additional monetary stimulus to reinforce the sustainability of the upswing, without jeopardising the achievement of the inflation target."

Growth was constrained by near record levels of household debt, access to credit and by high unemployment, she said.

Private sector credit demand has been in decline year-on-year since October last year, thanks to tight lending laws and already high debt, while consumer spending is held back further by big job losses.

South Africa's Treasury sees the economy growing 2.3 percent this year after last year's 1.8 percent decline, still well below potential.

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

Rwanda's inflation slowed to 2.46 percent year-on-year in February from 5.74 percent in December last year, while in South Africa the targeted consumer price gauge, at 5.7 percent, was back in the 3 to 6 percent range a month ahead of the central bank's prediction.

"This new reduction of the key repo rate will further stimulate banks to improve their lending conditions," Rwanda's central bank said. "This is necessary for speeding up the current slow economic recovery, from weak performance recorded in 2009."

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.