India’s recent ban on wheat exports has pushed grain prices even higher, piling further stress on African nations already heavily impacted by global supply disruptions.
While the ban won’t apply to existing contracts between India and Egypt, it is likely to have far reaching consequences for wheat importers such as Kenya and Nigeria.
Imports account for 98% of Nigeria’s wheat supply, for example. Meantime, economic stagnation and soaring prices in Zimbabwe have prompted the government to suspend import tariffs to enable its citizens to get access to food and other basic commodities from neighbouring countries.
Zimbabwe’s inflation rate hit 96.4% last month from 72.7% in March. Given those economic strains across the continent, we expect African central banks to diverge from the global rate hiking trend to focus on supporting their economies.
Naira hits record low 600 before elections
The Naira dropped to a new low this week, depreciating to 600 from 594 as politicians rushed to buy dollars for vote hunting ahead of Nigeria’s primary elections that kick off this weekend.
Central bank Governor Godwin Emefiele effectively ended his bid for the presidency after he missed deadlines to formalise his candidacy and resign from his post at the bank. Nigeria’s inflation rate jumped to 18.37% in April from 17.2% a month earlier amid rising food and energy prices.
We expect the Naira to depreciate further in the short term, however we expect gradual appreciating in the longer term as recipients of the political dollars reconvert to local currency via the parallel market.
Ghana boosts gold reserves in bid to lift Cedi
The Cedi weakened against the dollar this week, sliding to 7.72 from 7.53 at last week’s close. That came after the Bank of Ghana sold $50m into the market in its latest FX auction, considerably less than $162m of bids made—disappointing traders and causing the Cedi to trade on the backfoot.
The central bank also this week announced a bulk gold buying programme to boost its gold reserves in a bid to strengthen the Cedi without impacting inflation—which hit 23.6% in April.
While the success of that programme will be closely watched, we believe the Cedi will continue to lose ground against the dollar in the near term.
source: The Business and Financial Times
