Africa Market Update - July 2015

MARKET UPDATE – AFRICA | July 2015
-11.5 %
Tanzania Shilling
month-on-month
change
-1.3 %
Kenya Shilling
month-on-month
change
Despite having a
history of peaceful
elections, the
postponement of
the constitutional
referendum
and widening
rift between the
government
and opposition
factions could be
dimming investor
perception of the
economy in the
near term.
Reserve that a rate hike could be delayed.
The June 2015 FOMC 20 states that “the first
increase in the federal funds rate will be appropriate
when it has seen further improvement
in the labour market”; widely interpreted to
be sending dovish monetary policy signals for
the near term. Note that unlike the Tanzania
shilling, the Kenyan currency exhibited some
measure of resilience in what is likely to have
been the market’s reaction to the Central Bank
of Kenya’s hawkish move and the marginal
weakening by the greenback.
Tanzania and Kenya Shillings to the USD
Source: Bloomberg, StratLink Africa
Despite improvement in the country’s balance
of payment in the recent past (the ratio of
exports to imports improved to 0.7 in the full
year to April 2015 from 0.5 in the same period
a year earlier 21 ), depressed usable foreign exchange
reserves could be a key factor depressing
the shilling.
End of March Foreign Exchange
Reserves (USD Mln)
We further note that the outflow to inflow ratio
in the primary account 22 deteriorated to 6.5 in
the year to April 2015 from 5.2 in the full year
to April 2014 23 and could be one of the main
factors depreciating the local unit.
Could this Indicate Pre-election
Jitters?
The trend in the primary account inflows versus
outflows could also suggest that foreign investors
are assuming cautious position about
the economy as the country advances towards
the October 2015 election. Despite having a
history of peaceful elections, the postponement
of the constitutional referendum and
widening rift between the government and
opposition factions could be dimming investor
perception of the economy in the near term.
DEBT MARKET UPDATE
Yields continued to rise on the back of tightening
liquidity in the money market that saw the
interbank rate rise to a high of 27.9% on June
22nd, 2015. We note that this comes on the
back of Bank of Tanzania’s 200.0 bps hike of
the statutory reserve ratio for banks to 10.0%
effective May 29th, 2015; a move that was
geared towards cushioning the shilling from
immense pressure in the global market. We
also note that the government has set ambitious
domestic revenue targets that could be
seeing it elevate its uptake in domestic borrowing.
T-Bill Yields
Source: Bank of Tanzania, StratLink Africa
Source: Bank of Tanzania, Bloomberg, StratLink Africa
The interbank rate stands at a two year high as
Bank of Tanzania looks to support the shilling.
22 Records payments to and receipt from foreign investment
20 Federal Open Market Committee
in the current account
21 Bank of Tanzania May 2015
23 Bank of Tanzania May 2015
14 | StratLink Africa Ltd.
www.stratlinkglobal.com