AFRICAN policy makers awaiting the US Federal Reserve’s interest-rate decision will have heaved a sigh of relief after it left rates untouched, with the hope it helps ends uncertainty that’s driven their currencies to near record lows.
Fed officials left interest rates unchanged, opting to delay an increase amid stubbornly low inflation, an uncertain outlook for global growth and recent financial-market turmoil.
While tailored for the US market, a change would have had global ramifications as a raise would have pulled money from emerging markets.
“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 had said on Wednesday in an interview in the capital, Nairobi.
“The US 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 US was seen as preparing 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% against the dollar this year, while Zambia’s kwacha, the worst performing currency in Africa, slumped 36% and Ghana’s cedi fell 19%.
Falling prices for commodities such as copper, oil and iron ore have also contributed to the slide.
Economists had been almost evenly divided on whether Fed Chair Janet Yellen would 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%. Most of the rest had forecast a 25 basis-point increase.
A lack of clarity on US monetary policy contributed to currency jitters that caused the rand to weaken 14% 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%.
“The uncertainty is not good for anyone and the sooner we get rid of the uncertainty, the better,” Kganyago had said in an interview at the Group of 20 meeting on September 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 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.
Gold weakened while the dollar fell to a three-week low in the immediate aftermath of the decision..