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Currencies in Africa: South African Rand Leads Laggards

Global Market	1778 VIEWS
Global Market
1778 VIEWS

Friday, June 19, 2020 / 1:23 PM / United Capital Research / Header Image Credit: Bloomberg

Monetary Policy in Africa: Shooting for growth In the wake of the COVID-19 pandemic, global monetary policy authorities have launched several expansionary programs, to cushion the virus' negative economic effect on growth. African economies were no different, as the pandemic posed a threat to decades of economic growth, which was formerly buoyed by capital inflows, favourable commodity prices and large aggregate demand.

Notably, the massive flood of monetary stimulus in developed markets created room for African economies to trim policy rates, amid the implication on foreign fund flows. This included notable regional economic giants; Egypt (-300bps), South Africa (-275bps), Ghana (- 150bps), Kenya (-150bps) and Nigeria (-100bps). Also, the Central Bank of Egypt approved an EGP100.0bn package, to cover lending at preferential rates to the manufacturing, agriculture, and contracting loans. Similarly, the Central Bank of Nigeria launched a N1.1tn intervention fund to the manufacturing and healthcare sectors. Elsewhere, the Central Bank of Kenya lowered banks' cash reserve ratio by 100 bps to 4.25%.

For the rest of the year, the current expansionary stance of African monetary authorities is unlikely to change. As a result, we expect policy decisions to be focused on guiding economies into recovery, as different countries lift restrictions and lockdowns placed due to the pandemic.

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