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Climate improves for African currencies
The slow return to economic activity in major African nations spurred currency gains this week, while aid from the World Bank, IMF, and other multilateral lenders to cushion economies from the effects of coronavirus boosted dollar reserves. Currencies strengthened in spite of interest rate cuts to stimulate Africa’s two biggest economies. After successive weeks of selling pressure, we see an improved climate, with the gradual reopening of trade activities and resumption of exports pulling in welcome hard currency inflows.
Rand hits 10-week high as risk appetite returns
Demand for Rand-denominated assets lifted South Africa’s currency from 17.60 to 17.40, the highest dollar rate since March 20, supported by the easing of restrictions on economic activity around the world. In a break with negative local news flow, S&P maintained the nation’s credit rating, ending the recent run of downgrades. The Rand gained in spite of the South African Reserve Bank lowering its benchmark rate to 3.75%, the lowest since the 1970s, in a bid to stimulate the economy. We foresee further gains for the Rand in coming days with normalcy steadily returning.
BDCs reopening ease Nigeria’s dollar drought
Resumption of trade in Nigeria meant the reopening of Bureau de Changes after several weeks of closure had hampered supply of dollars and driven buyers to the unofficial market. Flow from BDCs helped the Naira appreciate in the parallel market from 460 to 450 per dollar this week. Support also comes from the CBN taking measures to boost FX liquidity amid higher oil prices and resumed exports. As in South Africa, the currency strengthened in spite of the central bank cutting the monetary policy rate from 13.5% to 12.5% in a bid to stimulate economic recovery. We foresee sustained levels if not further appreciation in the coming days.
Food supply pickup steadies Kenya’s Shilling
While dollar demand from importers for month-end obligations initially pared the Shilling to 107.20, improved FX earnings helped the currency recover to 106.90 against the dollar. Exports are supported by improved food supply amid favourable weather conditions, historically low international oil prices and the impact of reduced VAT. Kenya’s central bank retained its benchmark at 7%, after cutting by 25 bps in April. We expect steady trading of the Shilling if not appreciation.
Uganda buoyed by trillion-Shilling injection
Slight gains for the Ugandan Shilling this week are supported by inflows from commodity exports and charitable organizations as activity resumes after nearly two months of lockdown. Improved balance of payments and policy measures stoking optimism for the economy are likely to help the Shilling strengthen in the coming weeks. The government plans to support domestic production by injecting 1 trillion Shillings through bank loans and heavy tax duties on equivalent imported products. Public finances improved with receipt of a $48m loan from the World Bank to assist the country’s efforts in fighting desert locusts threatening agriculture across East Africa.
