" /> //pagead2.googlesyndication.com/pagead/js/adsbygoogle.js
Published On: Sun, Mar 4th, 2018

Naira: Analysts predict further depreciation


Foreign Exchange traders are already factoring the negative impact of the forthcoming general elections in 2019 on the economy as foreign exchange future prices indicate a fall in the value of the naira as election campaigns heat up during the year. Future prices on the FMDQ OTC trading platform suggest market traders are basically bearish.

The naira continued to weaken at the futures contract window, losing almost 1 per cent to $/N363.09 in the OTC FX futures Contract for February 27, 2019 as quoted on the FMDQ on Friday. Market analysts note that the decline has been minimal because of a significant improvement in the country’s foreign reserves, which has soared to $42.35 billion on the back of stable oil production output and international oil prices hovering between $60 and $70 per barrel within the year. The country’s foreign reserves have risen by over 40 per cent in the past six months.

Nevertheless, there are fears that as the elections get closer, there would be a run on the local currency as politicians who usually mop-up dollar to finance their elections go on a buying binge. And foreign portfolio investors who would be apprehensive of the uncertainty that surrounds the outcome of the elections take flight, thereby putting downward pressure on the naira.

“Politics will definitely have an impact on the naira. But I don’t expect the election to have much impact because our foreign reserves have gone up significantly. There would, however, be a certain amount of wariness amongst foreign investors. Many of them would just maintain a hold and watch position and a few may embark on capital flight, because they are not sure of electoral outcomes,” says Moses Ojo, head, Investment Research and Business Development, PanAfrican Capital Plc.

He believes there won’t be any major skirmish during or after the elections, but there would be uncertainty on whether there would be continuity or a change. “So, we expect foreign investors to embark on subtle capital flight which would negatively impact on the naira. It is to that extent we will see a weaker naira. But we expect the federal government to commit more dollars to meet emerging demand” he surmises.

READ  TomTom returns as Eagles official candy 

“There is always political risk when elections are drawing near. For offshore investors who have some portfolios here would likely repatriate some of their funds and stay on the sidelines and wait for a bit of direction before returning. Because of that reaction, there is always a bit of a scare factor that impacts on the naira,” Oluseyi Akinbi, analyst, Zedcrest Capitals Ltd told Business Hallmark. He projects that the value of the naira may decline to between $/N375 and $/N380 as the country moves closer to election days, which is expected in February 2019.

He, however, adds that the Central Bank is in vantage position to better defend the naira, having spent over $15 billion defending the local currency since April 2017.

The naira appreciated 0.03 per cent against the dollar to N360.03 at the Investors’ and Exporters’ Foreign Exchange (I&E) Window on Friday, but has remained stable at $/363 since February 27 at the parallel market.

There has been relative stability in the Nigeria’s foreign exchange market with the introduction of the Investors’ and Exporters’ Foreign Exchange (I&E) Window in April 2017, where the naira is believed to be fairly priced.

“In 2017, more prudent use of forex reserves, vigorous funding of food production and manufacturing by CBN, introduction of a more flexible forex market especially the I&E Window were key,” claimed Isaac Okorafor, acting director, Corporate Affairs, CBN on his twitter handle. He noted that the apex bank is working at closing the gap between the CBN Window which was $/N305.85 on Friday and other forex windows in the country. The spread between at the Nigerian Autonomous Foreign Exchange (NAFEX) Window and the parallel market has drastically narrowed since the former was introduced in April last year.

READ  Buhari approves deployment of NSCDC officials to Northeast

“I don’t envisage any turbulence in the forex market. Usually what we have is increased spending. So the challenge would be inflation not a run on the naira. Money will not be coming from abroad for politics. With the watchdog on the prowl, I don’t think people will be willing to parade their ill-gotten wealth. I don’t think there would any shock that would impact on the naira negatively,” Adi Bongo, economist and member of faculty, Lagos Business School.

In the same vein, “We are not really expecting political activities to affect the naira because with the launch of the I&E window in April last year, we have seen stability in the exchange rate because the naira is now considered to be fairly valued. And the external reserves are also strong due to increases in oil production and strong and stable oil prices,” maintains Ayobami Ayorinde, analyst, Research and Securities, Afrinvest (W/A) Ltd.

“But usually in an election year, government spends a lot of money to try and win the heart of the people. So, we may see the CBN doing a lot of mopping up of money from circulation by maintaining a tight monetary policy. It would impact the financial market because many foreign portfolio investors would movement out before the election watch the outcome of the election before coming back.

“The demand for fx before the election would be majorly from foreign portfolio investors who want to repatriate their money but this would have minimal impact of the FX market because the CBN has a lot of dollar reserves to be able to meet demand.  In 2015 CBN had serious challenge meeting FX demands because of the significant drop in oil price and production output,” he averred.




Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Most Shared

Recent posts

  • Banks search for lending opportunities

    …explore FOREX, trade finance and other businesses By FELIX OLOYEDE The thinning out of yields in Nigeria’s fixed income market has spurred banks to look for new sources of revenue in 2018. A large number of banks in 2017 took advantage of the federal government’s aggressive borrowing by way of domestic bonds to earn risk […]

  • Profitability: GTB, Zenith raise the bar as bumper returns set new industry pace

    By FELIX OLOYEDE As the results of firms in different sectors of the economy tumble on to the floor of the Nigerian Stock Exchange (NSE), GT and Zenith bank are setting the pace in the financial services sector as their gross revenues and post-tax profits for 2017 pierce new heights.  Both banks that rank as […]

  • Analysts caution over MTN’s bumper offering

    By TESLIM SHITTA-BEY Telecoms giant MTN, Africa’s largest telecommunications group, may be facing one off its tough times yet in recent years as it prepares to declare a full year 2017 headline earnings per share (EPS) of between R1.70 and R1.90 and a basic EPS of between R2.35 and R2.55. The weakening performance of the […]

  • Nestle Nigeria excites investors with high investment yield

    …but traders complain of market illiquidity By OKEY ONYENWEAKU With a dividend payout of N42.50 per share for the year ended 2017, shareholders would ordinarily have had broad smiles plastered on their faces as they pick up their dividend slips (or more recently received credit notices on their phones). The payment of N42.00 as dividend […]

  • Economy: CBN policies will double growth in 2018 –Dr Boniface Chizea

    With the Nigerian economy beating analysts’ 2017 projections for growth by about 20 basis points or 2% over the 1.7 % consensus forecast earlier in the year, private sector economists are growing in confidence that the 2018 growth rate would settle somewhere between 2.6 and 2.9 %.  This would mean that gross domestic product (GDP) […]

  • Food Security: Sustainable cassava seed systems critical – IITA

    Scientists and experts in agriculture have converged on the International Institute of Tropical Agriculture (IITA), Ibadan to concretize efforts on ways to develop sustainable cassava seed systems in Nigeria. This according to them, would enable them to solve problems of low productivity and improve the livelihood of farmers while ensuring food security. Coordinator, Dr Hemant […]

  • Measles campaign in Oyo: Govt deploys over 8,000 officials

    The Oyo State Government has deployed over 8,000 officials for the 2018 Measles Immunisation across the state. The officials, numbering 8,351, will serve as House to House mobilisers, facilitators and town announcers. They will carry out the campaign from March 15 to March 27. The Commissioner for Health in the state, Azeez Adeduntan, while monitoring […]

  • Falana slams NNPC for failing to reveal financial information

    Human rights lawyer, Femi Falana, has criticised the Nigerian National Petroleum Corporation (NNPC) for rejecting a Freedom of Information request he made concerning the operations and finances of the corporation. Falana said the submission that the NNPC is not a public institution is embarrassing in that NNPC’s Counsel did not advert her mind to section […]

  • Exercise Cat Race: Troops nab 12 herdsmen in Benue

    The Nigerian Army on Sunday said 12 herdsmen have been arrested in Benue State. Channels TV reports that the suspects were arrested by troops of 707 Special Forces Brigade presently taking part in the Exercise Cat Race called Ayem Akpatuma in the state. They were arrested for alleged involvement in the destruction of farmlands in […]

  • Veto of Electoral Act: Saraki, Dogara vow appropriate response to Buhari’s amendment

    The Senate President, Dr Bukola Saraki, and Speaker of the House of Representative, Yakubu Dogara, have vowed to jointly give an appropriate response after President Muhammadu Buhari withheld his assent to the Electoral Act Amendment Bill. Spokespersons for the Senate President and Speaker, Yusuph Olaniyonu and Turaki Hassan, revealed this in a statement on Saturday. […]

  • North East: 3.8m benefit from WHO free healthcare

    The World Health Organisation (WHO) says it provided health interventions to 3.8 million people affected by the Boko Haram insurgency in northeast in the past one year. WHO said in its 2017 annual report that it coordinated health sector partners and reached 3.8 million people with health services. The agency said that it worked closely […]

  • Saraki mourns as Sen. Ali Wakili dies at 58

    The President of the Senate Dr. Bukola Saraki has expressed sadness over the death of Sen. Ali Wakili who was the chairman of the Senate committee on Poverty Alleviation. Wakili died at the age of 58 and his death has been confirmed by Saraki in a series of tweets to mourn his deceased colleague. Our […]

  • Pound recovers as World supports Britain in spy case

    The British pound recovered Friday from weakness prompted by a Russian decision to expel British diplomats, as the world rallied in support for London in a crisis sparked by the poisoning of a double agent, analysts said. World stocks, meanwhile, rose slightly at the end of a volatile week as fears lingered of a global […]

  • Akintoye: Killer herdsmen more dangerous than Boko Haram

    Historian, Professor Banji Akintoye, has supported the proposition that the Federal Government should declare killer herdsmen across the country as terrorists. According to him, they appear to be more dangerous than Boko Haram terrorists and therefore, must be stopped before their activities get out of hand. He addressed the issue when he appeared as a […]

  • Delta community lament poor health care system

    Residents of Bomadi and Ughelli North Local Government Areas of Delta state have raised serious concerns over what they’ve described as poor healthcare systems in their community. According to them, the Bomadi General Hospital is the only hospital that serves communities in the entire local government and its environs and for many months now, the […]

  • Niger Delta oil spills: Amnesty Int’l accuses Shell, Eni of negligence

    Rights group, Amnesty International, has faulted reports of oil spills in the Niger Delta by Shell and Eni, and is asking the Federal Government re-open investigations into 89 oil spills in the region. According to the group, the oil giants under-reported the number of spills in the last seven years and also attributed the causes […]