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Brexit: Shock, confusion hit East Africa too 0

East African economies are bracing themselves for the consequences of Britain’s vote to leave the European Union. Central banks said they needed to monitor the immediate impact of the vote on money markets, before they could begin to consider interventions to tame volatility.

“The Central Bank of Kenya stands ready to intervene in the money and foreign-exchange markets to ensure their smooth operation. Other major central banks have also announced their readiness to intervene to minimise disruption in their markets,” said a statement issued on Friday morning as international media reported that the pound sterling had dropped to a 31-year low following the vote.

In an interview with The EastAfrican ahead of the vote, CBK Governor Patrick Njoroge had warned that a Leave vote could push emerging markets into a recession, a situation that would necessitate the use of monetary policy to ensure stability.

Bank of Tanzania Governor Benno Ndulu said the Brexit was likely to affect the markets: “It is a bit early to say now but we are following very closely because some knew that this would happen and they had already taken measures to arrest the situation.”

In Uganda, Stephen Wandera, director for financial markets at the Bank of Uganda, said there was no significant change in the shilling-pound sterling exchange rates.

But, he cautioned that the gains made by the US dollar as the pound sterling weakens, could affect the Ugandan currency. The Uganda shilling, he said, would react to internal factors, including the approaching deadline for filing tax returns.

“The dollar will face more pressure, as corporations sell their foreign-exchange reserves to pay taxes,” he said.

Eurobond market

“The vote for Brexit is negative for emerging and frontier markets because of the uncertainty that it now creates. We are in a risk-off environment, and many asset markets in developing countries will sell off because of this result. For markets such as Kenya, with twin fiscal and current account deficits, this means that external financing of these deficits is likely to become more difficult,” said Razia Khan, chief economist and head of African research at Standard Chartered Bank Plc.

According to Ms Khan, the turmoil in global financial markets as a result of the UK’s Leave vote would increase pricing for bonds, making it difficult for regional economies to access international capital markets for funding.

“Kenya has been looking to borrow externally through the Eurobond market in the new fiscal year 2016/2017. Any continuation of global market volatility will have implications for the price at which all sub-Saharan African sovereigns are able to borrow,” said Ms Khan. See video

Kenya’s Cabinet Secretary for National Treasury Henry Rotich said the flow of funds from Europe would certainly be affected because of Britain’s standing as a European financial hub.

“We are looking at what is happening on the financial side, since Britain is a financial hub in Europe and Kenya has been well integrated in the global economy. Obviously any development that affects the flow of finance from Europe or any other market will have some impact on our financial markets,” said Mr Rotich.

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By The East African Team

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