Stimulus wind down is Q4 booster for Africa FX; Rand indicators point positive

Stimulus wind down is Q4 booster for Africa FX

Stimulus measures taken up by most central banks in Africa in the initial phases of the pandemic are on hold with economies reopening. Ghana kept its policy rate steady this week at 14.5%, following freezes in South Africa’s policy rate at 3.5% and Kenya’s at 7%. A more positive economic outlook for the last quarter of the year combined with stable central bank policies point to a net positive outlook for sub-Saharan currencies overall.

Independence Day break for Naira

After a stable start to the week, the Naira lost ground to levels of 470 to the dollar in the unofficial market amid a spike in demand from importers and producers to meet end-of-month obligations. While the market remains skewed by speculators holding onto dollar positions on expectations of further Naira weakening, we see a calmer mood with less activity over the Independence Day holiday during the coming week.

Rand indicators pointing positive

The Rand appreciated to 16.70 levels from 17.12 this week as positive economic data from China bolstered investor confidence in the emerging market bellwether currency while at home inflation slowed to 3.1% in August from 3.2% in July. Inflation is within the regulator’s target range, allowing room for further monetary easing should the economy fail to recover from its downside trajectory. With improved sentiment, we project stability for the local currency in the coming days.

Kenya reopening drags down Shilling

The Kenyan Shilling weakened amid dollar demand from importers spurred by the economy’s reopening. On Monday, President Kenyatta reduced curfew hours to 11 pm to 4 am for the next two months, lifted the ban on sales of alcohol by bars and restaurants, and eased restrictions on social gatherings. The CBK retained its base lending rate at 7%, affirming that the current accommodative monetary policy is sufficient for now. Treasury CS Ukur said the economy remains in positive growth at 2.6%. CBK reserves used to support the Shilling dropped from USD8.838 billion to USD8.627 billion last week. We foresee a stable shilling in the week ahead.

Ugandan flights resumption flattens Shilling

The Shilling weakened to levels of 3711/3721 as a result of increased importer demand for hard currency from industries increasing activity and players in the interbank market. With business activities picking up further in anticipation of the airport and borders opening to tourists and returning Ugandans as of Oct. 1, we foresee continued pressure on the Shilling.

Election focus on growth supports Tanzanian Shilling

The Tanzanian Shilling improved to levels of 2295/2309.06 (2302.03) from 2315/2325 (2320) a week ago. With the political temperature rising ahead of the October elections, most politicians are campaigning to ensure economic growth, which has been sustained at an average of 6.9% for the last five years. The monthly economic review by the Bank of Tanzania released this month for July showed positive sentiment. The balance of payments improved to a surplus of USD 149.6 million in the year ending July 2020, from a deficit of USD 643.8 million in the preceding year. Exports of cotton, sisal, cashew nuts, coffee, tea, tobacco, and cloves doubled to USD 1,016.5 million in the year ending July 2020 from USD 503.3 million in the year-earlier period. We foresee continued support for the Shilling in the coming week from exports of cashew nuts, cotton, cloves, and sisal.

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.