Devaluation will be last resort for CBN – FBNQuest analyst
Despite the fact that oil price sloped downward, and rising impacts of Coronavirus that is threatening the global economy, analyst at FBNQuest , Fola Abimbola CFA has said Naira devaluation would be a last resort for the apex bank.
In a chat with MarketForces Africa, Abimbola said given the lack of political will to weaken naira, devaluation will likely be a last resort for the CBN due to far-reaching implications this has on the economy.
The Central Bank of Nigeria has consistently maintains that the monetary policy authority would not devalue the local currency.
With thick clouds gathering, some experts have stated that devaluation is inevitable as external reserves buffer plunged.
Fola Abimbola of FBNQuest said: “I do not see a sustained impact of the oil price drop and Coronavirus. These are temporary factors in the grand scheme of things”.
According to Abimbola, he said just like every other virus crisis in the past (SARS, Swine flu, Ebola etc.), there’s too much at stake for the spread to be prolonged.
“Containment in the very near term is more likely”, he added.
“Though oil prices may not bounce back to the US$60 barrel per litre as a result of the Saudi-Russia face off.
“I see it rallying to the 50s level post-Coronavirus on the back of a pick-up in demand from China and other heavy-weight consumers”, Abimbola said.
He said locally, given the lack of political will to weaken the naira, devaluation will likely be a last resort for the CBN given the far-reaching implications this has for the wider economy.
To support his view, he cited that the governor has said they’ll not be alarmed until reserves fall below $30 billion.
“Essentially, whether or not devaluation happens will depend on how long Coronavirus last”, FBNQuest Abimbola said.
He also said the CBN will not devalue on the back of some economist purchasing power parity (PPP) model. It’s more than that.
“Whether devaluation happens strictly has to do with the level of reserves and how CBN is able to meet FX demand.
“That said, a naira devaluation potentially translates to accelerated stagflation”, FBNQuest analyst warned.
Devaluation will be last resort for CBN – FBNQuest analyst
