Naira: Central Bank Delaying Inevitable Devaluation –Expert
Naira, the Nigerian local currency, according to some investment banking experts, is overpriced but a devaluation would put further pressure on Nigerians.
But analysts explain that the dollar will not flow into the country until the dust is settled on a real effective exchange rate for transactions. MarketForces Africa gathered that widening foreign exchange spread has raised arbitrage opportunities as currency speculators continue to cash in.
But a devaluation of the naira is undesirable amidst weak macroeconomic indicators, though gross domestic products expanded more than 5% in the second quarter, the growth outlook for the year, according to IMF projected is less than 3%.
This would probably translate to low per capita income amidst a rising population, a significant number of whom are facing joblessness, according to the National Bureau of Statistics 33.3% unemployment score.
In addition to the heavy unemployment rate, there is already pressure on price level despite the Central Bank single-digit inflation target.
Sources told MarketForces Africa that the CBN would unlikely go the way of devaluation considering Godwin Emefiele support for the Federal Government.
However, an investment expert Kingsley Aigbe CFA told MarketForces Africa in a chat that the central bank of Nigeria is only delaying the inevitable.
Many others hold the same view, saying that inability to determine the true value of naira would keep foreign investors at distance from the Nigerian economy.
Despite a steep jump in external reserves position, the naira has not fared better, according to trading statistics explored by MarketForces Africa.
Naira had worsened to N422 mid-October at the investors and exporters’ window as total dollar volume transacted tumbled following CBN withdrawal from market intervention.
Today, naira gained 0.01% against the U.S. Dollar at the Investors and Exporters foreign exchange window to close at N415.07, higher than CBN official spot rate on its website.
As of yesterday, Nigeria’s foreign currency reserves printed at $41.753 billion. With the external reserves uptrend, the apex bank intervention in the foreign exchange market slowdown, according to data from the FMDQ Exchange.
In what appears like a deliberate decision to stay off, total dollar volume traded at the Investors and Exporters foreign exchange window has been descending.
In a review, analysts at WSTC Securities however expect the CBN to begin intervention in the FX market, citing improved external reserves as catalysts for its expectation.
“We believe that the resulting liquidity in the FX market will significantly drive prices in the equities market”, WSTC analysts stated.
Analysts are also expecting stable crude oil prices in the global crude oil market to support the external reserves, although, they noted fuel subsidy as one of the bottlenecks that limit the upside gains of crude oil proceeds.
Nigeria’s multi-tiered foreign exchange is impacting foreign investors’ perception of the Nigerian economy, MSCI index had warned of a possible downgrade of the Nigeria Index, citing the inability of foreign investors to get dollars out of the country.
Since its ban on Bureau de Change weekly FX market intervention, Nigerian local currency has seen massive and persistent unofficial devaluation in the parallel market. This has widened the spread between official exchange rates and parallel market, creating arbitrage opportunities.
In the black market, the naira was exchanged for a dollar mid-week at N580 amidst rising demand. #Naira: Central Bank Delaying Inevitable Devaluation –Expert
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