BofA calls for de-dollarisation in Africa

In recent times, the discussions around de-dollarisation in Sub-Saharan Africa have been gaining traction. The continent is facing macroeconomic challenges such as heightened debt levels, high borrowing costs, debt servicing costs, and weak growth. Bank of America Sub-Saharan Africa economist Tatonga Rusigi delved into the topic during a televised interview on CNBC Africa. Rusigi emphasized the importance of reducing foreign or US dollar activity in domestic financial systems to promote stability, lower inflation, and increase lending in local currencies. He highlighted that some countries in the region, like Angola, have as much as 50% of foreign loans and deposits in local markets, posing risks to financial intermediation and monetary policy transmission. Contrary to the conventional form of de-dollarisation that focuses on trade, Rusigi emphasized a more homegrown approach aimed at reducing exposure to foreign activity within domestic markets. He cited examples of countries like Ghana and Nigeria, which have high inflation rates, necessitating a shift towards reducing foreign currency activity. On the other hand, countries like Kenya, with lower levels of dollarisation and single-digit inflation rates, serve as positive examples for the region. Rusigi underscored the importance of central banks maintaining independence to focus on inflation targeting and instrument independence. He pointed out instances in countries like Turkey and Nigeria where adjusting interest rates positively impacted inflation and attracted foreign investments in local currency debt. Moreover, he highlighted the significance of fiscal discipline in managing inflation and avoiding central bank financing of fiscal deficits. Discussing the challenges of managing inflation in the current global environment, Rusigi acknowledged external factors impacting inflation trends beyond the control of central banks. He noted recent inflation figures from key economies like the US, indicating potential delays in rate cuts and the need for inflation to stabilize before monetary policy adjustments can be made. In conclusion, Rusigi hinted at the possibility of delayed rate cuts in the region due to persistent inflationary pressures. He urged stakeholders to monitor inflation trends closely and emphasized the importance of domestic and global economic conditions in shaping future monetary policy decisions. As the region navigates the complexities of de-dollarisation and inflation management, lessons from successful cases like Kenya can offer valuable insights for policymakers and investors in Sub-Saharan Africa.