Temporary Relief for Rand; Low tax revenues to put pressure on Kenyan Shilling

Relief for Rand unlikely to sustain

After the week’s 4.7% rally from lows against the dollar on optimism of a peak in coronavirus cases in the US and Europe, we expect renewed pressure on the Rand as the government considers extending South Africa’s lockdown. Data from the World Bank’s report showed that the nation’s economy is likely to shrink 5.1% in 2020 compared with a previous outlook of 2.1%, in light of the impact of COVID-19 and downgrades to South Africa’s credit rating.

OPEC commitment to cuts fails to revive oil or Naira

OPEC’s decision to cut production by 9.7 million barrels a day to adjust to low demand as a result of coronavirus proved insufficient to revive the price of oil or the Naira, trading at 412.5 in the parallel market. Analysts are of the view that the CBN could lower its policy rates and increase the Loan to Deposit ratio to 65%, adding further pressure on the exchange rate. In normal circumstances this would certainly not be an opportune time to cut interest rates, considering high inflation rates.

Expected tax revenue hit weighs on Kenyan Shilling

Data confirming an expected decline in tax revenue collection could weigh further on the Shilling, with movement barred in and out of Nairobi and four other regions. Trading has been extremely light during lockdown and Easter week, with minimal dollar inflows, meaning that even small purchases of dollars can move the market. We expect continued pressure in the coming days.

Ugandan rate cut leaves Shilling heading weaker

Depreciation in Ugandan shilling looks set to continue after the central bank cut its policy rate last week by 100 bps to 8%, following similar moves by other central banks seeking to mitigate economic downturn. Inflation is expected in the range of 2 to 3% this year, half the Bank of Uganda’s target of 5%. Other moves to stimulate the economy include purchases of government bonds to ensure adequate access to credit and normal functioning of financial markets.

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.