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Increased Pressure on African Currencies Amidst COVID-19 Chaos

Nigeria in lockdown faces bank pressure

The Naira tumbled to its weakest level in 5 years in the parallel market at 415 per dollar, widening the gap with an official rate of 386 (See: current naira to dollar exchange rate). With 14-day lockdowns announced last week for Lagos and Abuja hitting productivity, banks came under added pressure from ratings downgrades for Zenith Bank, GTB and UBA. Given Nigeria’s reliance on crude for 90% of FX revenue, all eyes are on the oil markets. The extended drop in oil prices today will increase pressure on the Naira, with continuation around the $30 a barrel levels posing a risk of further devaluation.

Deepening recession continues pressure for Rand

The Rand crashed a further 9% to a low of 19.04 per dollar last week amid one of the world’s toughest COVID-19 lockdowns. Restrictions on business activity could take the recession deeper than the 2.5% slump already anticipated for 2020 by the Institute of International Finance, urging South Africa to seek IMF assistance. Both Moody’s and Fitch downgraded the country’s biggest banks to junk status. With no upside in sight, we anticipate extended pressure on the rand in the coming days.

Reprieve for Shilling ends with Kenya curfew

Kenya’s temporary reprieve from currency depreciations seen across the continent ended last week, with the shilling sliding 1.3% to 105 per dollar. COVID-19 cases climbed above 100, resulting in a partial curfew, impacting business activity. Significantly, Kenya’s banks avoided the downgrades seen in Nigeria and South Africa. The central bank’s interest rate cut, easing of the cash reserve ratio, and extension of repo tenors will “soften the adverse impact of the economic disruptions on banks’ asset quality and liquidity,” Moody’s said. While less exposed than other African currencies, shilling risk is to the downside.

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