Will global rate cut improve capital flows to Africa?

The Federal Open Market Committee is set to announce its next interest rate decision on Wednesday amid demands by US President Donald Trump for a rate cut. The Bank of Ghana recently left its policy rate unchanged, whereas Nigeria is preparing for its first monetary policy meeting in February. This meeting will leverage the outcome of a rebased GDP and CPI to make informed decisions. The central banks across the globe, including Africa, are currently examining domestic indicators to determine the course of action for the upcoming year. Victor Aluyi, the Head of Investment at Sankore Global Investment, has shared insights on the potential impact of global interest rate decisions on capital flows to African economies. Let's delve deeper into the intricacies of these discussions and forecasts. Over the past year, central banks globally have been monitoring economic trends closely. The Bank of England is expected to convene on February 6, with speculation rife about a potential interest rate cut. Following lackluster growth performance in the UK economy and weak GDP numbers, the BOE is likely to prioritize stimulating growth. Similarly, the ECB has faced challenges with sluggish growth and declining inflation, prompting further rate reductions. The US Federal Reserve, amid political pressures for rate cuts by the Trump administration, will closely monitor inflation and economic resilience before making any decisions. The unpredictable tariff policies also add complexity to the Fed's decision-making process. Contrasting this trend, the Bank of Japan has raised interest rates to normalize them, reflecting an uptick in inflation. Despite mixed signals globally, a general trend towards lower interest rates is expected in Western economies. Transitioning to the African continent, central bank governors are anticipated to ease interest rates gradually due to subdued inflation rates. However, external shocks and global economic conditions remain critical factors influencing their decisions. Countries like Nigeria, South Africa, and Ghana are closely watched for potential policy shifts. With Nigeria gearing up for its monetary policy meeting in February, factors such as the recently rebased GDP and CPI, along with inflationary pressures, will play a pivotal role in shaping decisions. Nigeria expects to hold rates steady for now, although future meetings may witness adjustments based on evolving economic conditions. The implementation of a 50% telecoms tariff in Nigeria could introduce additional inflationary pressures, impacting future rate decisions. The outlook for capital flows to and from emerging markets remains cautious. Despite potential rate cuts in Western countries, such as the US, the likelihood of significant inflows into regions like sub-Saharan Africa appears muted. High rates in the US and concerns about price stability in African economies hinder substantial investments. As global interest rates teeter around historic highs, the prospects for a surge in capital flows to African markets seem limited. Victor Aluyi, Head of Investment at Sankore Global Investment, highlighted the complexities of global interest rate dynamics and their impact on capital flows to African economies. While a global rate cut may instigate capital movement, numerous economic variables and stability concerns could impede substantial flows to African markets. The intricate balance between interest rates, inflation, and economic growth sets the tone for central bank strategies and capital flow dynamics in the coming year.