The East African Community Council of Ministers is due to meet before the end of this year to revisit the roadmap for implementing a single currency regime—the East African Monetary Union—after member states conceded that the original 2024 deadline agreed in 2013 is no longer achievable.
Members of the proposed single currency regime are struggling with macroeconomic convergence criteria related to inflation, fiscal deficits, public debt and exchange rate reserve targets. The setback mirrors a similar logjam in West Africa where disagreements between member states have delayed the introduction of that region’s single currency, the Eco.
South African unrest continues to rock Rand
The Rand plunged further this week as the ongoing looting and rioting across the country following the jailing of former President Jacob Zuma continues to weigh on South Africa’s economic outlook.
The currency was trading at 14.70 this week compared to 14.42 at last week’s close. Rising COVID-19 cases and tighter lockdown restrictions have also piled further pressure on the Rand. We expect the currency to continue to weaken against the dollar in the coming days while the violence persists.
Falling inflation eases pressure on Naira
The Naira strengthened against the dollar on the parallel market this week, trading at 503 compared to 506 at last week’s close as market liquidity improved. Meanwhile, the Naira was unchanged at 410 to the dollar on the official NAFEX window.
All of that comes as inflation fell in June for a third consecutive month as the recent hike in food prices continues to slow, with the rate edging down to 17.75% from 17.93% in May. We expect the Naira to maintain its current levels in the coming days as markets remain calm in the wake of the Eid-el-Kabir at the start of the week.
Ghanaian Cedi stabilises after recent weakness
The Cedi was unchanged this week, trading at 5.95 to the dollar, arresting the currency’s recent slide against the greenback (it was trading at 5.76 in the first week of June). Inflation crept higher in June to 7.8% from 7.5% in May, driven by rising food prices and travel costs: transport fares, for instance, were hiked 13% in June. We expect the Cedi to remain steady over the coming week amid thin market liquidity.
Egypt economic recovery prospects point to stronger Pound
The Pound appreciated against the dollar this week, trading at 15.67 compared to 15.71 at last week’s close. The International Monetary Fund’s Egypt country team last week said that Egypt’s commitment to prudent policies and its strong performance under the IMF programme has helped mitigate the health and social impact of the coronavirus pandemic while safeguarding economic stability, debt sustainability and investor confidence.
Celine Allard, a member of the IMF’s Egypt team, said that with the immediate impact of the crisis subsiding, it will now be essential to focus on structural reforms to encourage private sector-led growth. We expect the Pound will strengthen over time as the economy gradually recovers.
Diaspora remittances to keep Kenyan Shilling steady
The Shilling weakened against the dollar this week, sliding to 108.10/108.30 from 107.95/108.05 at last week’s close on the back of increased dollar demand. That was driven by merchandise traders beefing up their hard currency positions in anticipation of more trading partners reopening their economies globally.
However, we expect to see the Shilling remain steady over the coming week, supported by strong Forex reserves ($9.6 billion, adequate for 5.87 months of import cover) and diaspora remittances.
Ugandan Shilling weaker as lockdown continues
The Shilling depreciated slightly this week, trading at 3560 to the dollar compared to 3555 at the end of last week due to interbank and corporate demand for the greenback, as well as the ongoing impact of the COVID-19 lockdown. We expect the Shilling to remain under pressure in the lead up to month end when the government-imposed 42-day lockdown period concludes.
Investor inflows prop up Tanzanian Shilling
The Shilling was unchanged against the dollar this week, trading at 2319. The World Bank’s International Finance Corporation invested $1.2 million in a $3.8 million equivalent corporate bond issued last week by the Tanzania Mortgage Refinance Company.
The mortgage company’s bond programme will contribute to developing Tanzania’s debt capital markets, with the proceeds being used to improve public access to home loans. We expect the Shilling to remain steady over the coming week as investor inflows from the country’s treasury bill auctions offset manufacturing and energy importer demand for dollars.