Record low Cedi bound for GH¢10 levels - Report

No election relief in sight for Kenya’s record low Shilling

As Kenyans headed to the polls this week, the Shilling slumped to a fresh record low against the dollar, trading at 119.15/119.35 from 118.90/119 at last week’s close.

After a tight contest between William Ruto and Raila Odinga, most investors are awaiting the results, expected early next week, before taking a longer view on the country’s economic prospects.

While each candidate has pledged support to spur economic recovery with support for the poorest Kenyans, both face the same challenge: rising debt levels. Debt to GDP stood at 68.4% last year, up from 65.6% in 2020. Foreign exchange reserves are thinning, with import cover falling this week to a six-year low of $7.72bn, from $7.74bn a week earlier, enough to cover 4.45 months of imports.

Continued support for current food and fuel subsidies looks challenging in this environment. While foreign investors may be buoyed by a relatively peaceful election, we expect the Shilling to remain under pressure regardless of who takes the presidency. For the near term, we see increased dollar demand and lower FX inflows from export-earning sectors.

Naira set for 700 levels as food prices soar

The Naira declined against the dollar this week, trading at 675 from 665 at last week’s close as dollar demand increased on the unofficial market amid accelerating food inflation.

The Premium Breadmakers Association of Nigeria warned of another potential price hike due to the high cost of wheat and other baking materials. That comes less than a month after bakers went on strike over cost pressures, resulting in a 15% rise in bread prices.

Among the possible solutions being proposed by the association is for the government to create another forex window for wheat imports. We expect the Naira to continue sliding towards the 700 level as pent-up dollar demand creates further pressures on the parallel market.

Record low Cedi bound for 10 levels as Fitch sees debt restructuring

The Cedi lost further ground against the dollar this week, slipping to a fresh record low of 8.80, from 8.65 at last week’s close.

Ghana’s hefty foreign currency debt stock has led to increased FX demand for repayments, with global economists predicting further depreciation for the Cedi.

Fitch Ratings this week cut the country’s credit rating further into junk territory, lowering it two levels to CCC, eight below investment grade.

The rating agency said high interest costs coupled with low revenue as a percentage of GDP means any potential IMF deal is likely to include demands for “some form of debt treatment.”

Against this backdrop, we [AZA Finance] expect the Cedi to continue decline as far as 10 to the dollar in the near term.

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