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Xi’s forgiveness spurs debt relief optimism; Rand in resistance; Flower power for shilling

Xi’s forgiveness spurs debt relief optimism

Amidst weaker economic growth projections, Africa’s currencies look largely unscathed as funds from the World Bank and IMF continue to boost reserves while President Xi’s vow to cancel concessional Chinese loans due this year and rework some commercial debt has bolstered the prospect of a G20 debt relief package. China’s move shifts the focus to private creditors and bondholders to ease their terms.

Rand in resistance ahead of stimulus budget

The Rand recovered slightly this week to 17.20 per dollar, or 0.36% firmer, as investors returned to riskier assets spurred by global government stimulus measures. In the face of concerns over a second wave of coronavirus infections, South Africa stoked hope for investors with signals it will open more economic sectors currently under the lockdown. Further momentum could come from a revised budget announcement on June 24, which we expect to unleash a major stimulus package. Even so, the Rand is locked in a strong resistance level at 17.20 to 17.30 levels while negative risks abound.

Inflation and falling reserves hobble Naira

The Naira tumbled 6.2% on the official I&E window on Wednesday to 385 per dollar and depreciated slightly to 453 in the parallel market as inflation climbed to 12.40% vs 12.30% month-on-month while food inflation hit a two-year high of 15.04%. Depreciation was further stoked by foreign reserves dropping by $129.83 million in one week. Risk is weighted towards further weakness, especially if foreign reserves continue to decline.

Flower power for Kenyan shilling ahead of MPC support

An 80% surge in Kenya’s flower exports this month as economies reopen increased the flow of dollars and spurred strengthening for the shilling to 106.2 per dollar from 106.55, coupled with lower dollar demand from oil and merchandise importers. Treasury inflows from Kenya’s insurers and banks (278 million and 2 billion shillings, respectively) supported money supply. The Central Bank brought forward its planned MPC meeting by a week to June 25. With the continued rise of coronavirus cases impacting the economic outlook, we expect measures to maintain price stability and support growth will lift or maintain the currency in the coming days.

Bumper budget steadies Ugandan Shilling

Uganda’s 45 trillion Shilling ($12 billion) budget, driven by support for agriculture exports and accessible credit, and tax holidays to small businesses is keeping a rein on the exchange rate, unchanged this week at 3,720 per dollar. Amid low dollar demand from importers, we foresee stability in the coming week around levels of 3,715 to 3,730.

What official debt relief means for companies, currencies, economies – and moral hazard

Join us on June 24th at 1 pm WAT / BST for discussion on the outlook for extensive debt forgiveness – and risk of unintended consequences.

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