Firm Sees Official FX Rate at N482, Says Naira 13% Overvalued
There is a bleak outlook for the Nigerian local currency as Renaissance Capital Limited, a leading emerging and frontier market investment banking firm predicts that the Naira will hit N482 to a dollar at the investors and exporters foreign exchange window in 2022.
While the devaluation of the local currency is not so desired for Nigerians, analysts’ consensus remains that Naira is overvalued, the situation that Godwin Emefiele, the Central Bank Governor attested to while speaking with foreign investors at a webinar recently.
RenCap hinted at the webinar organised Wednesday that naira is currently 13% overvalued at the window, thus projecting that the local currency could see rate adjustment next year. Though recently, in what appears like selective FX management, the CBN devalued naira at the interbank foreign exchange market.
In a presentation Renaissance Capital’s Adesoji Solanke, Director, Frontier –Sub-Saharan Africa, the investment firm thinks the monetary policy committee of the Central Bank will likely raise benchmark interest rate next year to cushion steep headline inflation rate effects.
In its African economist, Yvonne Mhango estimates, Rencap thinks a more secure growth recovery and softening inflation rate will give Nigeria a score for a 100 basis points policy rate hike to 12.5% in 2022.
“We believe this will help contain inflation, seen in lower double-digit and depreciating naira”.
Mhango also thinks naira at the exporters and importers FX window is 13% overvalued, according to Rencap real effective exchange rate, saying the local currency has a fair value of N473 to a dollar.
Rencap forecasts headline inflation in Nigeria to settle at 14.5% and 12.4% in the fiscal year 2021 and 2022 respectively following a 7-month moderation that started in April 2021.
This implies that the Central Bank inflation target of 6%-9% will remain elusive, at least for a short term, the firm added.
Citing Famine Early Warning Systems Network (FEWS NET), the investment firm said there is an upside risk to its inflation estimate for 2022, noting the insecurity, the overall conflict across the northern region disrupting the ongoing harvest for millions of households.
It also pointed at FX depreciation, which the firm forecast to hit N482 per dollar at the investors and exporters’ foreign exchange window remains a downside to its inflation projection.
Pressure is also expected to come from high transport costs, below average harvest and high cost of imported goods are all downside to its inflation estimate.
“While we forecast a policy rate hike in 2022, we expect Treasury yields to remain flat with upside risk from an increase in government domestic borrowings”, it noted. # Firm Sees Official FX Rate at N482, Says Naira 13% Overvalued
Read Also: FX Markets Liquidity Squeeze Keeps Naira Overvalued
