As a frontier market, the countries of Africa represent both tremendous opportunities and tremendous risks. On the risk side of the ledger are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.
Luckily, the ups and downs of the African currency markets aren’t one of them if you know where to look. To help with that, AFKInsider has compiled all the news you need to know now in order to slim down your currency risk .
Nigeria’s central bank surprised the market with a bigger than expected rate cut, a first in more than six years and totally opposite of the policy stance other African nations have taken in the face of weakening currencies.
Governor Godwin Emefiele announced a bigger-than-expected 200 basis points cut on the benchmark rate to 11 percent from 13 percent on Tuesday, in an effort to stimulate to stimulate growth in Africa’s largest economy.
“We must stimulate growth,” Emefiele told reporters after the decision. “We don’t have a choice.”
The rate cut was bigger than a median forecast by seven of 20 economist polled by Bloomberg and four out of 23 analysts surveyed by Reuters before the rate meeting.
Many analysts expected the Central Bank of Nigeria (CBN) to hold the rate.
Emefiele said policymakers took into consideration “the weakening fundamentals of the economy, particularly the low output growth, rising unemployment and the uncertainty of the global economic environment” before agreeing on the rate slash.
The CBN also reduced the cash reserve ratio for commercial banks for a second consecutive meeting to 20 percent from 25 percent, in a measure to help boost liquidity in the money market.
Recent rate decision in South Africa, Uganda and Kenya hiked interest rates or left them elevated respectively as policymakers ward off inflation and weaker currencies.
They are also trying to pre-empt any contagion effect if the US Fed hike interest rates making the dollar much more stronger as investors shift from riskier assets in emerging and frontier markets.
Many African currencies have depreciated against a globally stronger dollar this year, putting many central bankers across the continent on the defensive.
While some have resorted to hiking interest rates and placing restrictions on currency trading, others have devalued their currencies to attract foreign investments.
Botswana is the only other African country that has cut rates this year.
Like many other African countries, the world’s largest diamond producer is facing reduced revenue as commodity prices remain suppressed globally, but fiscal surplus in previous year and strong levels of foreign exchange reserves has made it easier for the central bank to support the pula.
