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 policy makers are burning through their foreign reserves and tightening monetary policy to prop up their currencies. Thursday’s move by Kazakhstan, central Asia’s largest crude exporter, to abandon its currency peg has intensified speculation that authorities in Africa will 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 Kenya have been taking aggressive action this year to bolster their currencies, concerned with inflationary 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% 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 compiled by Bloomberg. Nigeria’s reserves have dropped 20% to $31.6 billion in the past year, Angola’s are down 16%, while Kenya’s slumped 14% since January.
The move by Kazakhstan, which caused the tenge to plunge as much as 24% against the dollar, followed China’s depreciation of the yuan last week and Vietnam’s third devaluation this year of the dong on Wednesday. Russia stopped managing the ruble 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.
