How will African central banks respond to inflation?

African central banks are in the spotlight as they gear up to make crucial decisions on interest rates in the coming days. The Bank of Ghana has already kicked off its Monetary Policy Committee (MPC) meeting in light of easing inflation rates. Meanwhile, Nigeria's MPC is set to convene early next week, prompting a closer look at the anticipated responses across the continent. Wonuola Akanbi, the Head of Energy and Infrastructure Sales at Global Markets at Stanbic IBTC Bank, provided insights on the challenges central banks are facing in taming inflation. Despite significant interest rate hikes, inflation continues to persist, with supply chain disruptions and legacy issues contributing to the ongoing inflationary pressures. The fiscal authorities play a crucial role in addressing supply-side constraints, such as transportation bottlenecks and security issues affecting food production. Akanbi highlighted the case of Ghana, where the MPC is currently in a three-day meeting, with a decision expected on Monday. Ghana has seen a slight moderation in inflation, but it remains above the medium-term target. The central bank is likely to hold rates steady for now and adopt a wait-and-see approach to monitor inflation dynamics. The conversation extended to the growing debt concerns across African economies, including Nigeria, Zambia, and Ghana. Nigeria, in particular, is focusing on revenue generation to mitigate its rising debt levels, which have reached 86 percent of the debt-to-GDP ratio. Akanbi emphasized the importance of widening the tax base and encouraging offshore investments to stabilize the debt outlook. Addressing the international dimension of debt management, the discussion turned to the challenges associated with debt restructuring and engaging private creditors. Many countries have sought support from bilateral lenders and multilateral institutions like the IMF, but gaps remain in involving private creditors in debt discussions. A coordinated effort involving all stakeholders, including private creditors, is essential to achieve sustainable debt levels. Looking ahead, the focus shifted to the strategies African central banks may pursue to combat inflation and promote economic stability. Akanbi emphasized the need for a holistic approach that addresses security issues, boosts transportation infrastructure, and fosters an enabling environment for private sector participation. The role of the fiscal authorities in complementing monetary policy actions was underscored as critical in addressing inflation and supply chain challenges. As inflationary pressures persist, projections suggest a gradual increase in inflation rates. A phased approach to tackling inflation is likely, taking into account base effects and gradual adjustments to monetary policy measures. While inflation is expected to remain elevated in the near term, a balanced policy response and coordination between monetary and fiscal authorities will be crucial in steering African economies towards a path of sustainable growth and stability.