Central banks in the region’s two largest economies, Nigeria and South Africa, both hiked interest rates this month and, whereas attention elsewhere is turning to rate cuts, the risks seem to be tilted towards further increases in both countries. Inflation problems are increasingly being driven by domestic issues. Persistent power cuts are the main source of concern in South Africa. And in Nigeria, the effects of botched demonetisation efforts look set to be followed by a fresh devaluation of the naira and fuel subsidy cuts in driving inflation higher. Policymakers gave little away in terms of forward guidance but it is clear that tackling inflation is taking precedence over supporting weak economies. Even if further interest rate hikes are avoided, it increasingly looks like policy will stay tight for an extended period.
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