Nigeria MPC scope limited, risk-on Rand

Nigeria MPC scope limited; risk-on Rand belies realities; multilateral boost to Kenya

MPC scope limited in face of Nigeria contraction

After a week of pressure on the Naira in which the CBN had to inject up to $100 million to offset selling, all eyes turn to the MPC this week as it responds to official projections for up to 8.9% economic contraction as a result of coronavirus lockdowns and low oil prices. Despite the need for monetary stimulus, the MPC must keep rates steady to cushion the currency from further depreciation after weakening to 460 on the parallel market last week. Inflation climbed to 12.34%. We still foresee sustained pressure on the Naira in the coming days.

Risk-on Rand belies coronavirus realities

The Rand strengthened as the South African Reserve Bank lowered its policy rate by 50 bps – less than the 100 bps many had expected – in a bid to boost recovery of the economy. The Rand has been recovering, climbing to 17.60 per dollar from 18.59 last week, with the global easing of lockdowns improving investors’ risk appetite. However, for as long as South Africa grapples with a rise in coronavirus cases, now at over 18,000, we are braced for continued volatility.

Multilateral boost to Kenya reserves sustains Shilling

The mood music has shifted again in Washington to help Kenya’s economy and the Shilling. Little over a week ago, the IMF increased the nation’s risk of debt distress from moderate to high, cautioning that COVID-19 fiscal stimulus measures left Kenya more challenged. Yet, last week the IMF disbursed $739 million, lifting the nation’s dollar reserves to the equivalent of 5.2 months of import cover and providing potential support for the Shilling against depreciation pressure. On top of that, the World Bank, citing Kenya’s “inclusive growth agenda,” approved $1 billion to help close the country’s budget deficit, which has increased to 8.2% of GDP from 7% in the previous fiscal year. The multilateral assistance will sustain the currency’s current level of around 107 per dollar.

Read more here: Pressure on African Currencies Amidst COVID-19

About The Author

  • Murega Mungai is the Trading Desk Manager at AZA, based out of the Nairobi office. His work revolves around FX trading and market analysis of emerging and frontier markets, particularly in Africa.

  • Terry Karanja is a Treasury Associate at AZA. She is actively involved in conducting market research to analyze current trends in the global economy and their effects on currencies, with a strong focus on Africa.

About The Author

Murega Mungai

Murega Mungai

Murega Mungai is the Trading Desk Manager at AZA, based out of the Nairobi office. His work revolves around FX trading and market analysis of emerging and frontier markets, particularly in Africa.