East Africa bloc to coordinate on tighter policies


East Africa’s central bank governors agreed at a meeting to work together on tightening monetary policy, stemming foreign exchange volatility and curbing currency speculation.

The five countries in the east African economic bloc (EAC) — Kenya, Tanzania, Uganda, Rwanda and Burundi — have all been hit this year by surging food and fuel prices and some have suffered significant slides in their local currencies.

The central bank governors from the five EAC member states meet regularly to discuss regional economic and policy issues, Reuters reports.

Wednesday’s meeting in Nairobi was attended by the governors from Kenya, Tanzania, Uganda and Rwanda. The Burundian central bank governor was also consulted on the issues.

In the past month, the Tanzania , Ugandan and Kenyan shillings have all weakened to record lows against the dollar and remain under pressure.

The year-on-year inflation rate in Uganda stood at 28.3 percent in September, while in Kenya it was 17.3 percent and Tanzania’s hit 14.1 percent as of August.
“Given these challenges, the governors agreed to coordinate the following actions: tightening monetary policy, stemming volatility in the foreign exchange markets, and curbing currency speculation activities,” they said in a statement, without detailing specific measures.

The bloc, which already has a common market in operation, aims for a monetary union by 2012 and thereafter eventually transform into a political federation, although few expect the deadlines to be met.

Analysts said it was good the governors came out with a combined statement on the regional issues, but the market would be looking for more specifics on how they plan to address the underlying demand for hard currency.
“There are no hints in this statement as to what they can do to respond to those real economy pressures,” said Razia Khan, Head of Research, Africa, Standard Chartered Bank.

The governors said the very high inflation in the region came primarily from high food and fuel prices, but also from demand pressures.
“The pressures for the currencies to weaken result mainly from the widening of the current account deficit originating from rapid expansion of the oil import bill and imports for infrastructure development,” they said.

The east African Community comprises Rwanda, Burundi, Tanzania Uganda and Kenya and has a combined gross domestic product of $74.5 billion.