Naira shortages persist even as court rules old notes legal

Amid an ongoing shortage of new Naira notes, Nigeria’s Supreme Court ordered that all old Naira notes be allowed back into circulation until the end of the year, giving banks the greenlight to dispense notes that had been intended to expire. Many businesses, however, are still refusing to accept the old notes as payment because the central bank has remained silent on the court’s order. Against the backdrop of continued pent-up Naira demand, the currency appreciated against the dollar, trading at 737 from 743 at last week’s close. As the court’s order takes effect and notes begin recirculating, we expect the Naira to decline gradually.

Ghana debt service suspension sets Cedi toward 12 levels

The Cedi strengthened to 12.32 per dollar from 12.65 at last week’s close as the suspension of external debt servicing payments eased the strain on dollar supplies. Ghana has been widening negotiations with external creditors, holding talks with China on $1.9bn of debt, a third of its obligations to bilateral lenders. China has been pushing back on accepting a haircut on its loans, saying it wants its debt treated the same as multilateral lenders such as the World Bank, which are exempted from the restructuring. Reduced pressure on the currency allowed the Bank of Ghana to ease its FX support, selling just $5.2m into the market compared to $10.75m a week earlier. We expect the Cedi to continue strengthening toward the 12 level in the near term.

Rand at 33-month low after worse-than-expected contraction

The Rand fell to its weakest level in 33 months, trading at 18.58 from 18.14 at last week’s close after the South African economy contracted more than expected in the three months to December. The economy shrank by 1.3%, the most since the third quarter of 2021, as power cuts caused declines across sectors, including finance, trade, catering and accommodation, mining, agriculture, and manufacturing. President Cyril Ramaphosa announced a cabinet reshuffle and a new ministry for planning, monitoring and evaluation. Given the continuous blackouts and negative sentiment around the cabinet changes, we expect the Rand to decline further in the coming weeks.

Egypt parallel rate widening sparks devaluation concern

The Pound weakened to 30.88 per dollar from 30.77 at last week’s close amid concern of a further potential central bank devaluation as the parallel market rate sinks faster than the official rate, hitting 33.5 this week. The currency remains under intense pressure due to an FX shortage and rapidly rising inflation. According to the central bank, net foreign assets declined in January to negative EGP654bn from negative EGP494bn a month earlier. Egypt said it would sell an additional stake in state-backed Telecom Egypt as the government seeks to raise hard currency and reduce its involvement in the economy. Given the ongoing economic pressures, we expect the Pound to depreciate further in the near term.

Kenya Shilling at new low amid inflation pressures

The Shilling declined to a fresh record low against the dollar, trading at 128.30/128.50 from 127.10/127.30 at last week’s close amid persistent FX demand from importers, as well as the impact of rising inflation. Dry weather conditions are impacting vegetable crops, pushing prices higher and increasing the cost of living. External debt repayment obligations are also contributing to broader FX scarcity, which has led to fuel shortages as importers are unable to get hold of enough dollars to replenish their stocks. Kenya’s FX reserves dropped to a new low of $6.61bn from $6.86bn a week earlier. With the lack of rain likely to impact harvests and push inflation higher, we expect the Shilling to continue depreciating in the near term.

Uganda PMI positive for 7th month spurs Shilling

The Shilling strengthened against the dollar, trading at 3701 from 3711 at last week’s close as business output and new orders increased for a seventh consecutive month. The Stanbic Bank Uganda Purchasing Managers Index remained in expansionary territory in February at 51.2, although that was down from 53.2 a month earlier (anything above 50 signals expansion). Businesses are optimistic about the next 12 months bringing increased demand and easing inflationary pressures. For now, higher input costs, including electricity and water, continue to push inflation higher, and we expect the Shilling to weaken near term as a result of this.

Shilling lifts off 3-year low as Bank of Tanzania sells dollars

The Shilling strengthened marginally against the dollar, trading at 2340 from a three-year low of 2342 at last week’s close. The Shilling held up despite a broader retreat from emerging market currencies after the US Federal Reserve said interest rates are likely to end up higher than previously expected as it grapples to get inflation under control. The Bank of Tanzania has continued intervening in the FX market, selling $124m into the market during the first half of the 2022/23 financial year. Given this central bank support, we expect the Shilling to continue trading around current levels over the coming week.

West African central bank cuts cash supply to tame inflation

The Central Bank of West African States is seeking to reduce inflation in the region by cutting the amount of cash available to banks and increasing financing rates to temper demand. This week it injected XOF5.5bn into the interbank market via its auction process, short of the XOF8bn commercial banks in the region said they needed, paying a weighted average rate of 4.45%.

Cameroon public worker pay rises follow fuel subsidy cut

Cameroon’s President Paul Biya has agreed to increase civil servant salaries by 5.2% following the recent cut in fuel subsidies that pushed diesel prices more than 25% higher. That salary bump will raise the incomes of more than 400,000 workers across the public sector, including police and army officers and teachers, adding to inflationary pressures.

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Issued by AZA Finance, this Newsletter is produced as a service to our clients. It is prepared by our dealing professionals and is based on their understanding and interpretation of market events. AZA Finance cannot be held responsible for any losses of whatever nature sustained as a result of action taken based on comments contained in this publication.