Planning for the new West African currency ECO has resumed after a lull since the Covid-19 epidemic, with member states currently working on engagement modalities. At its second regular meeting of the year, this Monday, the Central Bank serving the eight member countries of the CFA franc – the Monetary Policy Committee of the Central Bank of West African States (BCEAO) – reduced the interest rates on its marginal loan window from 4.5% to 4% and lowered the minimum interest rates for liquidity injections from 2.5% to 2%. The central bank kept reserve requirements at 3%.
The stable rand because the rise in risk prevails over the warnings
In a dramatic week of stimulus and economic warnings, the rand barely budged, trading at levels of 17.46 the dollar. The currency’s gains were down from the rate at the start of the week when it reached 17.20, signs of an increased appetite for global risk outweighing weak domestic economic indicators. The Treasury has announced a 500 billion rand ($ 29 billion) stimulus package amid growing debt, a budget deficit expected to climb to 15.7% of GDP from the projected 6.5% more early in the year, and official expectations of an economic contraction of 7.2% in 2020. the worst seen in 90 years. With much of the economic gloom already present since the start of the year, we see the currency continuing to trade flat in the short term overall.
Unification of naira rates observed at the highest level of NAFEX
The naira continued to face pressure, going from 455 to 460 in the parallel market, with increased demand for dollars and bets from speculators. Amid calls for unification of Nigeria’s multiple exchange rates, Nigerian Central Bank Governor Godwin Emefiele at an online investor conference this week said the rate should be around the NAFEX level , which is currently 380 for the dollar. The long-term political goal is a positive net for the naira.
Fitch Rating’s negative outlook weighs on Kenyan Shilling
The shilling fell to 106.45 from 106.20 per dollar this week, as Fitch Ratings downgraded its outlook on Kenyan currency issuers’ long-term default rating from stable to negative. Given the slowdown in world trade, Fitch forecasts a drop of at least 30% in agri-food exports and a drop in tourism, limiting economic growth to 1% for 2020. The possibility of a downgrading of ratings could lead to an increase in exchange rate borrowing costs for government and business. The Kenyan Central Bank kept its benchmark lending interest rate at 7% at a meeting of the Monetary Policy Committee yesterday, saying that recent policy measures have the expected effect on the economy. End-of-month inflows from horticultural exports and diaspora remittances are expected to balance the dollar demand of oil producers and importers over the coming week, which will create stability for the shilling, while the economy will gradually reopen thanks to the measures to limit the Covid-19.
Uganda elections increase pressure on shilling
Disrupted supply chains, weakening global demand for foreign exchange and the locust epidemic in the region have reduced inflows from agricultural production, the Ugandan shilling is down from 3,730 shillings to 3,720 shillings this week. Pressure is also mounting on the political arena as the government continues its plans for a general election next February. Despite the restrictions of Covid-19, the main leader of the Ugandan opposition insisted on organizing open-air rallies from the start of the election campaign. We expect continued pressure on short-term shilling.
Source: AZA, parent company of BFX