Africa’s central banks are in the line of fire
Policymakers burn through foreign reserves
CURRENCY devaluations from Kazakhstan to China are heaping pressure on African central banks to relinquish control of their exchange rates as they run down reserves faster than any other region.
From Nigeria to Uganda, African policymakers are burning through their foreign reserves and tightening monetary policy to prop up their currencies. Last week’s move by Kazakhstan, central Asia’s largest crude exporter, to abandon its currency peg has intensified speculation that authorities in Africa would devalue or halt intervening in their foreign-exchange markets.
“I’m sure African central banks are watching avidly what’s happened in Kazakhstan,” Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said on Thursday. “It puts increasing pressure on them, especially Angola and Nigeria. Investors are already expecting devaluations in Nigeria and Angola. This just heightens those expectations.”
African central banks from South Africa to Ghana have been taking aggressive action this year to bolster their currencies, concerned by inflation pressure emanating from rising import costs. Commodity-- dependent nations such as Zambia and Ghana are struggling to cope with currency declines of more than 20 percent against the dollar since January.
Half of the 20 countries that have lost the most reserves as a proportion of the total in the past year are from Africa, according to data.
Nigeria’s reserves have dropped 20 percent to $31.6 billion (R409.40bn) in the past year, Angola’s are down 16 percent, while Kenya’s have slumped 14 percent since January.
Costly exercise
“Some countries just don’t have the level of reserves to use that frequently and it’s a very costly exercise,” Nema Ramkhelawan-Bhana, an economist at Rand Merchant Bank, said in Johannesburg. “We are going to see a lot of tightening of monetary and financial conditions across these African countries.”
The move by Kazakhstan, which caused the tenge to plunge as much as 24 percent against the dollar, followed China’s depreciation of the yuan last week and Vietnam’s third devaluation this year of the dong on Wednesday, while Russia stopped managing the rouble in November.
Nigeria and Angola, Africa’s biggest oil producers, have held off on weakening their currencies in recent months, despite Brent crude prices falling almost a fifth this year to below $50 a barrel.
Nigeria’s naira may be lowered by 15 to 20 percent against the dollar following the action by Kazakhstan, according to Mhango. The currencies of the two nations have tracked each other closely since both were devalued within 10 weeks of each other in 2008/09, she said.
The Central Bank of Nigeria said it had no plans to ease its rules or devalue. “We have not seen any reason so far to institute a change in the foreign-exchange policies,” Ugochukwu Okoroafor, a spokesman for the bank, said in Abuja, the capital.
Genuine demand for foreign exchange would be met by the central bank, he said.
The naira fell 0.5 percent to 199.25 per dollar on the interbank market at 10.50am on Friday in Lagos, the commercial capital.
While Angola’s central bank devalued the kwanza about 6 percent on June 5, it has mostly maintained the currency since then at about 126 to