Introduction - Trouble With Bubbles by Gordon Platt
2014 Central Banker Summaries | Middle East & Africa
Algeria’s GDP growth was about 3% in 2013, while inflation slowed to 3.3% from 8.9% in 2012. The oil-producing country has a low external debt and nearly $200 billion of foreign exchange reserves, equivalent to three years of imports. The IMF says the decline in inflation brought about by monetary tightening and fiscal consolidation is welcome. However, it advised the central bank to stand ready to raise rates if necessary in light of a recent surge in credit to the economy and planned increases in government spending.
José de Lima Massano
The National Bank of Angola has kept its key policy rate unchanged at 9.25% so far this year, after lowering it by a half point last November. The IMF expects real GDP to increase by 5% this year, as oil production recovers. It says Angola has returned to solid economic growth with single-digit inflation, strong international reserves and a stable exchange rate. Governor Massano expects the non-oil sector to expand by 9% this year, amid investments in roads and power production. A new law requires foreign oil companies to use kwanza to pay local suppliers. Increased use of the kwanza has improved the effectiveness of monetary policy, Massano says.
Rasheed Mohammed Al Maraj
With its currency pegged to the dollar, Bahrain has little flexibility in its monetary policy. The central bank has kept its repurchase rate at 2.25% in recent years. The economy expanded by more than 5% last year, driven by a rebound in the oil sector that is unlikely to last, according to Capital Economics. Meanwhile, political tensions remain elevated and fiscal policy needs to be tightened, which could limit GDP growth to 2.5% this year and next, Capital Economics says. The central bank is studying the status of stalled real estate projects at the request of the country’s ruler.
Egypt’s central bank raised its key interest rates by a full point in July, in an attempt to contain an expected rise in inflation after the government cut energy subsidies and raised prices for electricity. It said the preemptive rate rise was warranted “to anchor inflation expectations and hence limit a generalized price increase, which is detrimental to the economy over the medium term.” The country’s economic growth remains well below levels needed to bring down the unemployment rate, economists say. Partly as a result of the higher interest rates, investment may not recover as
quickly as expected.
Ethiopia’s economy continues to experience strong growth and single-digit inflation. The IMF forecasts GDP growth of between 8% and 8.5% over the next two years. It says recent stable inflation makes this a good time to introduce market-based instruments of monetary control. The country’s foreign exchange market needs to be made more flexible to promote the competitiveness of exports, it says. Meanwhile, continued large borrowing by the public sector is crowding out the private sector.
Henry Kofi Wampah
In the face of high fiscal and current-account deficits and a weakening currency, the Bank of Ghana increased its policy rate by two percentage points to 18% in February, and by an additional point to 19% in July, in addition to raising bank reserve requirements. The high interest rates and a sharp decline in the cedi have begun to weaken private-sector activity. The IMF says GDP growth is expected to slow to 4.75% this year from 5.5% in 2013. The Bank of Ghana denied a Fitch report that implied it was printing money to finance the country’s budget deficit. The bank says it was acting to support general economic activity.
Abdul Basit Turki
Just as Iraq’s economy was showing signs of increased growth amid rising oil production, fighters from the militant ISIS group swept across northern and western parts of the country in June and occupied Mosul, Iraq’s second-largest city. Governor Turki says he is unconcerned about the ability of the central bank to manage monetary policy and maintain the stability of the Iraqi dinar in these exceptional circumstances. The central bank bought 36 metric tons of gold in March to help stabilize the currency. Turki says the bank has enough reserves to set the exchange rate as it pleases.
Flug became the first woman to head the Israeli central bank, after being passed over twice for the job. She was appointed governor last October, after serving as acting governor since her mentor, Stanley Fischer, stepped down four months earlier. Fischer went on to become vice chairman of the US Federal Reserve. The Bank of Israel was fully justified in cutting its policy rate three times this year. In February it lowered the rate by a quarter point to 0.75%, amid lower inflation, a rising shekel and slower than expected economic growth. The central bank lowered its policy rate again in July, to 0.5%, with inflation continuing to run at the bottom of its 1% to 3% target range. In August it cut the rate to 0.25%, its lowest level ever, as the economy slowed further on a decline in tourism due to the war in the Gaza strip.
The Central Bank of Jordan has been gradually lowering interest rates to promote economic growth at a time when inflation has remained subdued. The bank lowered its key policy rates by a quarter point last October and by another quarter point in January 2014. In June it cut the interest rate on its overnight deposit window facility and its weekly repurchase agreements by a half point each. The IMF says Jordan’s economy is gradually picking up, with GDP expected to increase to 3.5% in 2014 from 2.9% in 2013. Still, the conflict in Syria is weighing on the economy, and gas supplies from Egypt are subject to fluctuations, the IMF says.
The central bank has kept its overnight loan rate unchanged at 8.5% so far this year, while encouraging commercial banks to narrow their lending margins, particularly for home mortgages. Property developers say high mortgage rates are making it impossible to meet government targets for new housing. Meanwhile, the economy has continued to expand, and a benchmark revision to the country’s GDP system could bring 2013 economic growth to as high as 20%, economists say. Following a $2 billion bond issue in June, Kenya’s reserves have reached a level equivalent to more than five months of imports.
Mohammad Yusuf Al-Hashel
Bank governor Al-Hashel has kept a steady hand on monetary policy, while speaking out about the need for economic reforms to give the private sector a more significant role in Kuwait’s economy. The discount rate was last cut in October 2012 by a half point to 2%. In an annual press conference in April, Al-Hashel said reliance on oil revenues is “hampering sustainable economic development.” He said chronic economic challenges facing the government were the result of “a failure to comply with disclosure, transparency and governance, in addition to political disputes.”
The Bank of Lebanon has done its best to keep the economy growing, while managing the government’s huge debt, amid a political stalemate and effects from the Syrian conflict. The unemployment rate has soared to 20%, as the labor market has swelled with an influx of refugees. The central bank has maintained steady interest rates through its intervention in the bond market. It has also extended loans to commercial banks at a 1% interest rate and allowed banks to invest 3% of their capital in technology start-ups.
Bank Al-Maghrib has kept its policy rate steady at 3% so far this year. GDP growth rebounded in 2013 to 4.5%, owing to a bumper cereal crop following a severe drought a year earlier. A reduction in energy subsidies last year helped to narrow the country’s fiscal deficit. The central bank expects inflation to average 1.8% in 2014, with GDP growth likely to slow to 2.5% to 3%.
GRADE: TOO EARLY TO SAY
Nigeria’s central bank kept its benchmark rate unchanged at a record high 12% in July, at the first monetary policy meeting since Governor Emefiele assumed office in June. Emefiele took over from Lamido Sanusi, who was suspended in February after he charged that $20 billion of government oil revenue was missing. Emefiele says he would like to pursue a gradual reduction of interest rates once inflation eases. Consumer price inflation in June was 8.2%, within the bank’s 6% to 9% target range, but the highest in 10 months.
Hamood Sangour Al Zadjali
The Central Bank of Oman pegs the rial to the dollar and manages liquidity through an online deposit facility. The central bank has kept its benchmark rate at a record low 1% since March 2012. The country’s GDP increased 4.6% in the first quarter of 2014, supported by sustained high oil prices. In October 2013, the bank cut the ceiling on interest rates that commercial banks are allowed to charge on new personal loans to 6% from 7%. Banks also must extend at least 5% of total credit to small and midsize companies.
Abdullah Saud Al-Thani
Qatar, the world’s largest exporter of liquid natural gas, continues to enjoy large surpluses that enable it to support a massive infrastructure buildup. GDP rose 6.5% in 2013 and likely will grow close to that level again this year, before accelerating again in 2015, as a new gas field comes online. Economists say the biggest risk to the economy is a potential overheating as Qatar rushes to build new roads and stadiums to host the 2022 World Cup, assuming the event is not derailed by bribery allegations. The central bank has held its overnight lending rate unchanged at 4.5% so far this year.
The Saudi Arabian Monetary Agency, the kingdom’s central bank, has limited leeway in setting monetary policy, because of the riyal’s peg to the dollar. It has done an excellent job in managing the country’s banking system and in regulating the insurance industry. SAMA also manages Saudi Arabia’s massive reserves, estimated at $730 billion, although it may soon share that duty with a proposed sovereign wealth fund. Strong growth in the private sector and steady oil production could boost GDP growth to 4.6% this year from 4% in 2013, the IMF says.
The South African Reserve Bank raised its policy rate by a quarter point to 5.75% in July, despite a weak economy that was threatening to tip into recession. The rise followed a half-point increase in January, as the rand sank amid an emerging markets crisis, fueling already high inflation. “This weak growth outlook is not something monetary policy can ameliorate,” Marcus says. “The monetary policy dilemma is complicated by the fact that the economy is not experiencing significant demand-side inflation.”
Tunisia’s central bank has kept a close watch on inflation, as the country attempts to complete a political transition. The central bank raised its policy rate by a half point to 4.5% last December, citing inflation pressures. At the same time, it lowered bank reserve requirements to 1% from 2%, to ensure adequate liquidity in the economy. A stalemate between the former, Islamist-led government and the secular opposition gave way early this year to a caretaker government. A presidential election is scheduled for November. The central bank raised its policy rate by a quarter point in June to 4.75%, as inflation edged above its 5.4% target for 2014.
UNITED ARAB EMIRATES
Sultan Nasser al-Suwaidi
The UAE central bank has kept its overnight repurchase rate unchanged at a record-low 1% since January 2009. The country’s dirham currency is pegged to the dollar. The federation of seven emirates, including Abu Dhabi and Dubai, had GDP growth of 5.2% in 2013, as the real estate market recovered quickly. Last November, Dubai won the right to host World Expo 2020. Inflation is expected to increase, and the IMF has warned that policy action may be needed if real estate prices continue rising rapidly. The IMF forecasts GDP growth of 4.8% for 2014, with strong growth in the tourism, hospitality and real estate sectors.