September 4, 2014 / 4:58 PM / 3 years ago

AFRICA FX-Outlook bearish for East African currencies; cedi, naira to hold firm

JOHANNESBURG, Sept 4 (Reuters) - Rising importer demand is likely to weigh on East African currencies against the dollar next week, but tight monetary policy in Zambia is expected to prop up the kwacha.

In West Africa, dollar proceeds from the state energy company should prop up Nigeria’s naira, and neighbouring Ghana’s cedi should rally on anticipation of an IMF bailout.


Traders expected the Kenyan shilling to lose ground as increased money market liquidity fuels demand for dollars, although the central bank is likely to sell dollars to prop up the local currency.

By 1135 GMT on Thursday, commercial banks quoted the shilling at 88.60/65 to the dollar, weaker than last Thursday’s close of 88.35/45.

“More liquidity in the market points to a weaker shilling,” said John Njenga, a Commercial Bank of Africa trader.

After a brief liquidity crunch, the average overnight interbank lending rate fell to 8.2033 percent on Wednesday from 13.8391 percent on Aug 25.

Speculation in the market was that the Central Bank of Kenya would not allow the currency to weaken below 89 shillings/dollar, Njenga said.

The central bank pumped an unspecified amount of dollars into the market last month after the shilling fell to 88.80/90, its weakest since December 2011.


An expected surge in importer demand before the December shopping season could put pressure on the Ugandan shilling

At 1127 GMT commercial banks quoted the shilling at 2,603/2,613, stronger than last Thursday’s close of 2,615/2,625.

“We’re in that period when we typically see a rise in dollar demand from importers because December is nearing,” said Ahmed Kalule, a trader at Bank of Africa.

But the currency, which has fallen 3.2 percent against the dollar so far this year, may get some support from next week’s Treasury auction for 180 billion shillings worth of two- and 15-year bonds, Kalule added.


The Tanzanian shilling is expected to weaken against the dollar in coming days, undermined by growing demand from the energy sector.

Commercial banks in east Africa’s second-biggest economy quoted the shilling at 1,655/1,665 to the dollar on Thursday, stronger than 1,662/1,672 a week ago.

“We are now seeing oil-marketing companies coming back into the market with demand for dollars. Therefore, the outlook is that the shilling will likely depreciate going forward,” said Sameer Remtulla, a dealer at Commercial Bank of Africa.


Traders were bullish on the kwacha, citing a tight monetary policy and increasing dollar inflows before a treasury bill auction on Thursday Sept.4.

Commercial banks quoted the currency of Africa’s second- largest copper producer at 6.0500 per dollar on Thursday, from a close of 6.0000 a week ago.


Nigeria’s naira is seen range-bound next week, supported by dollar sales by the state energy company NNPC and offshore investor flows into the local debt market.

The local currency has drifted in a 161.70-162.55 band since last week.

“The naira should see some gains next week, but not far from the present range,” one dealer predicted.


Ghana’s cedi should also hold its ground as investor confidence rebounds before bailout talks with the International Monetary Fund (IMF) next week.

Ghana is due to begin talks with the IMF in mid September for an assistance program aimed at shoring up its economy, which is beset with stubborn deficits and high inflation. The currency has slumped 39 percent this year.

The cedi, which hit a record low of 3.9000 against the dollar in June, has clawed back in the last two weeks to trade at around 3.6400 on Thursday. (Reporting by Drazen Jorgic, Elias Biryabarema, Fumbuka Ng‘wanakilala, Chris Mfula, Oludare Mayowa and Kwasi Kpodo; Editing by Stella Mapenzauswa, Larry King)

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