Dollar hoarders test CBN mettle

The Naira lost ground from last week’s gains, sliding to 461 to the dollar in the unofficial market from 457 a week ago. Lower oil export revenue and the economic impact from the pandemic will cause external reserves to sink to between $29.9b and $34.3b, from $35.7b in September, the CBN projected in a report earlier this month. Even though speculative buying has been lower than normal, anticipation of Naira depreciation has driven hoarding of dollars, while demand for FX from manufacturers persists. While the CBN has tried measures within its mandate to ensure it meets FX demand, it is likely to see continued pressure on the local currency in the coming days.

Rand may gain as Ramaphosa outlines recovery measures

The Rand firmed up at levels of 16.45 from 16.54 last week, supported by intermittent spurts of global risk appetite on expectations of a stimulus package in the US that would weaken the dollar and boost the emerging market bellwether currency. While hopes in the US seem dashed for now, further gains for the Rand may follow from South African President Cyril Ramaphosa outlining measures the government is putting in place to spur economic recovery.

Oil importers drive Kenyan Shilling lower

Kenya’s Shilling edged lower during the week to 108.50/70 levels on the back of high demand from oil and merchandise importers. The weakening of the exchange rate has caused a spike in electricity prices, the Energy and Petroleum Regulatory Authority (EPRA) warned. The IMF in its latest global economic outlook, issued on Tuesday, forecast economic growth of 1% for 2020. This falls well short of National Treasury and Central Bank of Kenya projections of 2.6% and 3.1%, respectively. The IMF’s 2021 outlook is also less optimistic, revised down to 4.7% from an earlier 6.1%, largely due to the second wave of COVID-19 infections. We foresee continued pressure on the Shilling in the coming week from increased dollar demand by importers.

Uganda heading for recession snags Shilling

The Ugandan Shilling weakened slightly to 3,710/3,720 per dollar due to an uptick in demand, mainly from players in the interbank market. Moody’s downgraded Uganda’s economic strength to Ba3 from Ba2-stable, citing relatively low productivity, high transport costs and the economy’s comparatively small size and low wealth levels indicating limited shock absorption capacity. The IMF expects Uganda’s economy to contract by 0.3% in 2020 and expand 4.9% next year. We foresee continued pressure on the Shilling in the coming week.

Tanzanian Shilling stable during election countdown

In the face of political noise in the run-up of the Oct. 28 presidential elections, Tanzania’s Shilling remained relatively stable against the dollar, trading at 2315/2320 (2320) from 2313/2327 (2320) a week ago. Support for the currency came from inflows for agricultural sectors and charities, helping to balance dollar demand from importers in the manufacturing and energy sectors. The government received dividends from Twiga Mining company totaling $40 million (about Sh100 billion) and a Sh1.1 billion dividend from the State Mining Corporation. President Magufuli said the funds would go towards improving education, healthcare, and other social services. Tanzania came top for resilience in the IMF’s global economic outlook, with growth projections for 2020 at 1.9% matched only by Ethiopia. Tanzania signed an MOU with the Embassy of Netherlands on Tuesday in which it receives an undisclosed amount to support Tanzania startups as a solution to youth unemployment. With such trade and investment inflows, we foresee the currency remaining steady in the coming week.

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