Naira edges back from record low after 150bp rate hike; Cedi weakness pauses as central bank lifts rates again; Dollar strength likely to cap Rand gains: AZA FX Week Ahead


AfDB plans $1.5bn grain programme to tackle African food shortage
The African Development Bank has created a $1.5bn fund to boost grain production in Africa as shipments decline globally amid Russia’s war in Ukraine. The programme will supply 20 million farmers on the continent with seeds and fertiliser to help produce 38 million tons of food, including wheat, corn, rice and soybeans. The move should help ease the food crisis on the continent, as well as support the agricultural sector more broadly. It could also spur economic growth, given the number of African nations dependent on agriculture as a key economic driver.

Naira edges back from record low after 150bp rate hike
The Naira depreciated against the dollar this week, hitting a fresh record low of 610 before recovering slightly to 605, but still trading weaker than Friday’s close of 600. That slight recovery came after Nigeria’s central bank lifted rates by 150 basis points to 13%—the first hike in almost six years. Also this week, the government said it will impose a 5% levy on the country’s mobile operators for all mobile recharges starting from June in an effort to fund free healthcare for vulnerable sections of the population. We expect the Naira to appreciate in the coming days back to the 600 level following the rate hike, however strains are likely to persist over the medium term given ongoing dollar supply constraints.

Cedi weakness pauses as central bank lifts rates again
The Cedi appreciated marginally against the dollar this week, trading at 7.77 from 7.80 at last week’s close. The slight strengthening came after the Bank of Ghana this week raised rates by 200 basis points to 19% to counter surging inflation. That follows a 250 basis point hike in March—the largest in its history. Meantime, Ghana recorded a trade surplus of $1.3bn during the first four months of the year, driven by an increase in gold exports as well as higher crude prices globally. However, we expect the Cedi to weaken in the coming days as investors continue to shy away from Ghanaian assets.

Dollar strength likely to cap Rand gains
The Rand appreciated slightly against the dollar this week, trading at 15.80 from 15.84 at last week’s close. The brighter mood came as credit rating agency Standard & Poor’s upgraded South Africa’s credit outlook to positive from stable, citing the country’s favourable terms of trade and efforts it is making to rein in spending. This, coupled with the recent 50 basis point rate increase and lower-than-expected inflation figures, has made the Rand more appealing to investors. We expect the currency to continue trading in the 15.5-16 range in the near term, though we don’t anticipate gains beyond that given the relative strength of the dollar.

Egyptian Pound weaker as inflation worries mount
The Pound depreciated against the dollar, sliding to 18.59 from 18.28 at last week’s close. The latest round of weakness came despite last week’s larger-than-expected 200 basis point rate hike as the country attempts to grapple with surging inflation and ongoing exchange rate pressures driven by its dependence on food and energy imports. We expect the Pound to continue on this weaker trend in the coming days.

Kenyan Shilling slides to new dollar low
The Shilling declined to a fresh record low against the dollar, trading at 116.40/116.60 from 116.00/116.20 at last week’s close amid continued elevated demand for the greenback from the manufacturing and energy sectors. Kenya’s reliance on wheat imports from Ukraine is also exacerbating inflationary pressures, with the country turning to other wheat exporters such as Mexico to help ease shortages. Meantime, Kenya’s FX reserves fell slightly to just under $8.3bn from around $8.4bn the previous week, sufficient for 4.93 months of import cover. Given the upcoming election in August and continued global economic challenges, we expect more pain for the Shilling in the coming week.

Ugandan Shilling weaker as Museveni rules out fuel subsidies
The Shilling weakened against the dollar this week, sliding to 3675 from 3656 at last week’s close. Ugandan President Yoweri Museveni ruled out offering subsidies or removing levies on food and fuel imports given its potential impact on FX reserves and government revenue, calling such steps ‘suicidal’ during his state of the economy address on Sunday night. Gasoline prices in Uganda have increased by around a fifth since last November, with broader inflation currently hovering just under the 5% mark at its last reading in April. Against that backdrop, we expect the Shilling to depreciate in the near term.

Shilling stable as Tanzania eyes infrastructure boost
The Shilling was broadly stable against the dollar this week, trading at 2327 from 2326 at last week’s close. The Tanzanian government this week increased funds available for infrastructure development, with the Works and Transport Ministry set to receive a budget of roughly TZS3.9tr for the 2022/23 financial year—96% of which will be spent on projects including railways, airports and roadworks. The government also said it is seeking investment for its 5G network trials. We expect the Shilling to remain steady against the dollar in the week ahead.