Bloomberg News

Interest Rate Increases May Undermine African Growth, UN Says

July 01, 2011

July 1 (Bloomberg) -- African central banks should be wary of raising interest rates as increased food and oil prices threaten to damp economic growth, the economics director of the United Nations Economic Commission for Africa, Emmanuel Nnadozie, said.

Inflation stemming from a global jump in food and fuel costs may curb consumption in Africa, where people spend a larger percentage of their income on essential items, Nnadozie said yesterday in an interview at the African Union summit in Malabo, the capital of Equatorial Guinea.

Central banks shouldn’t increase interest rates in cases where economic growth is below the country’s potential, such as Nigeria, Egypt, Libya and Tunisia, he said.

“There is a real threat that this could really hamper the growth trends that you are seeing,” Nnadozie said. For some countries “it would be premature for them to start thinking about interest rate hikes.”

Central banks in countries such as Nigeria, the continent’s largest oil producer, and Kenya, which has East Africa’s biggest economy, have raised their key interest rate this year as they battle inflation.

Kenya’s inflation rate rose to the highest in more than two years in June, jumping to 14.5 percent from 13 percent, the Nairobi-based Kenya National Bureau of Statistics said on June 29. The central bank’s monetary policy committee is due to meet this month to decide on the benchmark interest rate, which it has raised twice this year to bring it to 6.25 percent.

‘Tricky’

Nigeria’s central bank last month raised its benchmark rate for the third time this year, increasing it by half a percentage point to 8 percent. The lender is struggling to bring inflation into single digits from its April level of 11.3 percent.

“For Nigeria, the question is a little tricky,” Nnadozie said. “They’re saying they’ll grow 6 or 7 percent, but I think it has the capacity to grow even more so one has to be a little bit careful.”

Egypt, Libya and Tunisia should maintain low interest rates in order to spur economic growth, which has been weakened by the political unrest in the North African nations, Nnadozie said.

--Editors: Philip Sanders, Ana Monteiro

To contact the reporter on this story: Franz Wild in Malabo at fwild@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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