Franc To Strengthen Gradually

Having held steady at around DJF175.55/US$ for the first three quarters of 2009, the Djiboutian franc recently strengthened to DJF174.40/US$. Although the paucity of official makes it difficult to gage the franc's natural level, we believe that the latest exchange rate move primarily reflects US dollar weakness. A second factor potentially supporting the Djiboutian franc is foreign investment inflows into the port sector, with US$90mn slated for disbursal from the African Development Bank. Our current end-year target for the franc is DJF174.80/US$. Over the longer term, we foresee a gradual appreciation towards DJF170.00/US$ in 2013 as productivity gains in the port sector - the mainstay of the Djiboutian economy - support a realignment of the exchange rate. Djibouti operates a currency board arrangement.

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