Fed’s unchanged rate leaves Africa unsettled

Monday September 21 2015

Federal Reserve Chair Janet Yellen arrives to speak at the Federal Reserve's Wilson Conference Center September 17, 2015 in Washington, DC. PHOTO | BRENDAN SMIALOWSKI |

The decision by the United States Federal Reserve mid last week to hold off an interest rates hike has left African markets unsettled, with analysts warning that the depreciation of the currencies around the continent is likely to continue.

On Thursday, the Fed elected to keep its interest rate at zero, pushing the US dollar lower and temporarily lifting the pressure from most world currencies.

Should the the US Federal Reserve decide that it is finally time to start raising interest rates later next month or at the beginning of 2016, African currencies will feel the pressures of a bullish dollar even as central banks try to stem the tide.

According to Jeff Gable of Absa Capital, a member of Barclays Bank, the current market environment remains very unstable for most African currencies, and East Africa is no exception. 

Last week, Kenya’s Treasury Cabinet Secretary Henry Rotich said that the emerging markets and frontier economies are being affected by speculation on the interest-rate hikes.

“The US has a responsibility at this stage not to create more disruption,” Mr Rotich said.


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Merceline Gatebi, a financial analyst at Genghis Capital, said that after the Fed’s decision, most market players will adopt a wait-and-see approach.

“We are going to definitely see some adjustments in international capital flows in several emerging and frontier market, Africa included,” Ms Gatebi said.

The rate decision however gives breathing space to most African central bank policy makers, who have been toying with both the monetary and fiscal policy instruments as their currencies depreciate further against the dollar.

Mr Gable however is cautions about the future of decision making at African central banks after the Fed decision.

“Leaning against any particularly heavy high-frequency move in a country’s currency may make sense, but trying to direct the value of the currency by the central banks over longer periods is unlikely to be very successful,” he said.


Fitch Ratings, in a research note, said that a rise in US interest rates had been well-signalled, but there still remains a substantial gap between the US Federal Reserve’s indication of the rates and what the market is pricing in. 

“Emerging-market borrowers may have become more exposed since 2008 to an impact on their funding conditions from an increase in US interest rates,” Fitch said in the note, signalling that most markets including South Africa, Kenya, Nigeria and Ghana are braced for tough times ahead.

Daniel Kuyoh, senior investment analyst at Alpha Africa Asset Managers, said that despite the Fed decision, the likelihood of a raise will still send jitters throughout emerging markets, hurting their currencies.