South Sudan Central Bank scraps repo rate

The South Sudan Central Bank has recently made the decision to scrap the repo rate in an effort to tackle the issue of parallel markets and unify exchange rates. In a recent interview on CNBC Africa, an expert provided insights into the rationale behind this decision and the challenges that lie ahead. The central bank's objective is to bridge the gap between the market rate and the official rate, which has been causing discrepancies and volatility in the economy. By selling hard currency to commercial banks and foreign bureaus, the central bank aims to ensure a steady supply of US dollars in the market. One of the key challenges faced by the central bank is the issue of inflation, which has seen a more than 50% increase in the cost of living on a monthly basis in South Sudan. Previous attempts to address this, such as requiring commercial banks to bid for US dollars, have not yielded the desired results. The central bank's decision to base the exchange rate on market forces is a step towards achieving stability in the economy, but it also poses new challenges. The expert highlighted the importance of local production in addressing the shortage of hard currency in the market. South Sudan heavily relies on imports, which necessitates a constant supply of US dollars. Until the country can boost local production and reduce its dependence on imports, the challenge of maintaining a stable exchange rate will persist. To build trust and stability in the market, the central bank has started offering weekly forex auctions to commercial banks and foreign bureaus. This initiative aims to make US dollars more readily available and prevent drastic fluctuations in the market rate. By ensuring a more predictable exchange rate, traders can plan their business activities with more confidence and reduce the risk of price fluctuations. However, the expert noted that achieving a stable exchange rate is only the first step in addressing the underlying issues in the economy. The long-term success of this strategy will depend on factors such as the global oil prices, which have a significant impact on South Sudan's economy. As oil prices have rebounded in the post-COVID era, South Sudan has seen an increase in revenue from oil exports, providing a boost to its foreign currency reserves. In conclusion, while the central bank's decision to scrap the repo rate is a positive step towards stabilizing the exchange rate, there are still challenges ahead. Achieving long-term stability will require addressing structural issues such as local production, reducing dependency on imports, and closely monitoring external factors like oil prices. By taking a holistic approach to economic management, South Sudan can work towards building a more resilient and sustainable economy.