High Interest Rate to Keep Naira Range Bound – CIO
A high interest rate environment is expected to keep the naira within N1450 to N1550 in 2025, according to a prediction made by Erad Partners Limited. Oluwadamilare Oladeji, its Chief Investment Officer (CIO), told MarketForces Africa that the company is guiding an exchange rate that fluctuates around N1500 +/- 10%.
“Our initial view would be (1500 +/- 10%); this is based on the premise that local interest rate would remain elevated to retain foreign portfolio investors (FPIs) flows.
Elevated yield on fixed interest securities continues to boost foreign portfolio investors’ (FPIs) appetite for naira assets amidst inflation slowdown and high benchmark interest rate.
Recent data revealed there have been strong inflows from offshore investors into Nigerian markets amidst drive to safe haven over U.S Fed rates fluctuation. The new risk, however, emerged recently in the fixed income market, where yields on government securities, plain vanilla bonds, and Treasury bills have moderated.
In its note, CardinalStone Partners Limited warned that lower yields could triggered capital outflow. “What is keeping investors in the market is Nigeria’s strong interest rate environment … without which, there could be strong need to upstream US dollar abroad if offshore investors exit positions in naira assets”, Broadstreet analyst not authorised to speak told MarketForces Africa in a chat.
A slew of analysts said the Central Bank of Nigeria (CBN) has scaled back on OMO auction with only one issuance in Feb, and March, though yield on OMO bills remain attractive versus others fixed income market assets.
Inflows from offshore bets have supported FX inflows strongly in the official window, in addition to active role the monetary authority is playing to keep supply side strong.
The recent stability of the naira is anchored on the CBN’s aggressive foreign exchange market interventions, and market critics are not happy about this; has gross external reserves cracked.
The latest foreign reserves depletion which has been alluded to sustained FX sales to banks is a misconceptions, according to a slew of analysts who preferred not to be mentioned. They added that one of the reason why nations maintain strong foreign reserves is to support the local currency on timely basis.
“Japan did, and is doing as Yen fell sharply against the US dollar in 2024”, experts echo. The added that while the CBN is doing its best to keep the naira strong, the fiscal authority showed re-structured the economy in a way to generate more foreign currency inflows.
The Nigeria’s external reserves fell to $38.4 billion on the back of sustained FX intervention, and latest settlement of the country’s debt services payments.
As part of efforts to intervene in the currency market, the authority has since the beginning of the year allocated more US dollar to back the local currency from free falling across the markets.
“There is no economy in world where the reserve or central bank don’t intervene”, Oluwadamilare Oladeji, Chief Investment Officer at Erad Partners Limited said.
Oladeji explained that price stability is at the core of the mandate of global central banks. He said solution to naira challenges is to curb the demand for FX, the root of which would be to improve local infrastructure.
Speaking about Erad Partners exchange rate projection for 2025, its CIO said, “Our initial view would be (1500 +/- 10%), this is based on the premise that local interest rate would remain elevated to retain FPI flows with positive return on fixed income where yields are higher than inflation.
The firm anchored its exchange rate expectations on an external reserves balance of N40 billion, saying it is currently at 38.36 billion. #High Interest Rate to Keep Naira Range Bound – CIO #Transcorp Hotels Hits Record High Ahead of Dividend Payment
