Coronation’s Experts Say Naira To Escape Devaluation In 2020

Experts at Coronation Merchant Bank (CMB) have formed no devaluation consensus on Nigeria’s local currency, naira, for year 2020.  They hinged their views on the apex bank policy strategy to raise Eurobond as well as other multi-lateral loans.

Coronation’s experts stated this at breakfast session organised with the theme “Re-risking the financial system,” held in Lagos on Wednesday.

Though, Coronation’s expert show awareness that the external reserves which have been on decline pose a threat, but they said Eurobond and international loans would reduce currency risk.

In their separate but coordinated presentations, experts view that the Central Bank of Nigeria is on the right foot in the currency management.

Speaking at the event, Guy Czartoryski, Head, Research, Coronation Asset Management, said that Naira would not be devalued in 2020.

Czartoryski said the CBN had mapped out policies that would ensure exchange rate stability.

The head of research at Coronation thinks that the CBN would keep the exchange rate at close to N362.50 per a dollar for most of 2020.

“Although foreign exchange reserves fell steeply during the second half of 2019, we believe there will be sufficient sources of US dollars in 2020 for the CBN to support foreign exchange reserves.

“These include possible issue of Eurobonds and international loans.

“The recent history of the Naira/US dollar exchange rate shows that 20 per cent over-valuation of the Naira, in terms of fair value, is associated with devaluation.

“Such a level may be reached during 2021, but the risks of this happening in 2020 are low,” he stated.

Speaking on interest rate, he anticipated downward pressure on T-Bill and government bond rates to continue as domestic funds rotate from high-yielding CBN OMO bills into government securities.

Czartoryski said that bank earnings may suffer somewhat from the CBN’s initiative to limit the scope of card charges.

He however noted that “this will likely be offset by balance sheet expansion and a degree of interest rate protection from high-yielding securities.

While addressing the issue, Iyobosa Sorae, the bank’s Head, Trading & Fixed Income, said that Naira devaluation would not happen in the short-term, 2020.

“If you look at where we are today, if you look at output on month-to-month, I think we are well positioned to weather this year.

“To put a caveat to it, we are looking at the short-term, we are speaking for just 2020, we are not speaking into 2021,” Sorae said.

According to her, the apex bank had already put in place strategies to ensure naira stability such as issuance of Eurobond and bilateral loans, among others.

Sorae stated that the $3.5 billion Eurobond that would be issued when concluded would boost the nation’s foreign reserve and help in mitigating currency risk.

“The Eurobond that is going to be issued, they are currently on a road show that should happen probably before the end of the first quarter or early in the second quarter.

“The $3.5bn Eurobond would add to the nation’s reserve, if you look at where we are, we are about $36 billion and if you add the Eurobond money it will take the reserve to about $39 billion.

“We can decide to take bilateral loans from the likes of the World Bank and IMF.

“We can decide to take these loans and if we are taking the loans in tranches of a billion, two billion it then means that foreign exchange reserve at the end of the day might be comfortably be sitting at 40 billion dollars.

“If we get 40 billion in reserves do we see devaluation? It’s based on these statistics that we are saying for this year, we think CBN is on the right foot as regards the currency,” she added.

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In his opening remark, Banjo Adegbohungbe, the bank’s acting Managing Director, said that the company would continue to provide clarity in spite of uncertainties in the market place.

Adegbohungbe said that despite uncertainties in economic indices and parameters, interest rate, Coronavirus, exchange rate and interest rate, there were still opportunities in the investment horizon.

He said that the recent introduction of the Over-the-Counter – Non Deliverable Forwards (OTC-NDF) by the CBN and the FMDQ Group would boost the growth of foreign direct investment (FDIs).

The CBN on Feb. 13 introduced the much awaited long-dated FX Futures, extending the maximum contract tenor to up to five years.

Speaking to journalists on its 2020 outlook, Adegbohungbe said the introduction of the OTC-NDF by the CBN was an opportunity for foreign direct investments to grow.

He added that it was critical for a country like Nigeria to experience a shift from foreign portfolio investment (FPIs) to FDIs.

Banjo said: “We think that this initiative from the Central Bank will in the long term encourage foreign direct investment.

“FDIs are important to GDP growth, to address unemployment, create jobs amongst others.

“When FDIs are talked about, we are competing with other emerging markets and those other markets are coming up with initiatives as to how to attract FDIs and we think that this is a good initiative that has come up and in the long term will attract FDIs,” he said.

Coronation’s Experts Say Naira To Escape Devaluation In 2020