African policy makers are awaiting the U.S. Federal Reserve’s interest-rate decision with trepidation, hoping it ends uncertainty that’s driven their currencies to near record lows.
“Emerging markets and frontier economies like us are being affected by interest-rate hikes or by what’s happening with the strengthening of the dollar,” Kenyan Treasury Secretary Henry Rotich said on Wednesday in an interview in the capital, Nairobi. “The U.S has a responsibility at this stage not to create more disruption.”
Kenya’s shilling has been among African currencies hardest hit this year by a slump in sentiment toward emerging markets as the U.S. prepares to raise interest rates for the first time since 2006. Policy makers from Kenya to Ghana and South Africa have tightened monetary policy to ward off inflation threats and bolster their currencies.
The shilling has dropped 14 percent against the dollar this year, while Zambia’s kwacha, the worst performing currency in Africa, slumped 36 percent and Ghana’s cedi fell 19 percent. Falling prices for commodities such as copper, oil and iron ore have contributed to the slide in sentiment.
Economists are close to evenly divided on whether Fed Chair Janet Yellen will tighten monetary policy on Thursday, with 59 of 113 economists surveyed by Bloomberg predicting the upper bound of the benchmark rate will be left at 0.25 percent. Most of the rest forecast a 25 basis-point increase.
A lack of clarity on U.S. monetary policy contributed to currency jitters that caused the rand to weaken 14 percent this year against the dollar and forced South Africa’s central bank Governor Lesetja Kganyago to raise the benchmark interest rate for the first time in a year in July to 6 percent.
“The uncertainty is not good for anyone and the sooner we get rid of the uncertainty, the better,” Kganyago said in an interview at the Group of 20 meeting on Sept. 5 in Turkey’s capital, Ankara.
Both Kenya and South Africa will hold interest-rate meetings next week, in which they will probably decide to keep borrowing costs unchanged, according to economists surveyed by Bloomberg.
The rand fell 0.7 percent to 13.3634 against the dollar as of 7 p.m. in Johannesburg, while the shilling gained 0.5 percent to 105.50.
The importance of the Fed’s decision for South Africa “will depend on the timing of interest-rate adjustment, the pace of rate increases and how international capital flows adjust to the higher interest rates,” Phumza Macanda, a spokeswoman for the National Treasury, said in an e-mailed response to questions on Wednesday.
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