Economy
Official FX Rate to Hit N800/$1 Soon—EIU
By Adedapo Adesanya
The Economic Intelligence Unit (EIU) has predicted that the Central Bank of Nigeria (CBN) will revert to heavier management of the exchange rate in late 2023 to tame rapid price rises, as evidence shows that the rates are widening across several windows after a float of the currency in June.
Business Post reported that the Naira closed at N775.76/$1 at the Investors and Exporters (I&E) window last Friday, while it sold at an average of N867 to a Dollar at the parallel market.
The EIU, which is an arm of London-based The Economist Magazine, stated in its Country Report on Nigeria, released over the weekend, that the wide gap between the I&E window and the parallel market before the FX unification is making a return due to illiquidity.
According to the EIU, “The new exchange rate is classed by the CBN as a ‘managed float’, but there are inconsistencies in application to a more liberal currency regime as foreign-exchange access restrictions still apply to an array of imports. This will unnerve foreign investors, and a backlog of FX orders the CBN failed to clear before opening up the market, and deeply negative real interest rates will keep liquidity tight.
“Along with high and rising inflation, the naira will be under significant pressure in the near term. The CBN lacks experience in conducting monetary policy under a float, and the need to control rapidly increasing inflation will become more acute over time.
“Our forecast is finely balanced, but we expect a return to heavier exchange-rate management from the second half of 2023 as the naira slides beyond N800:US$1, from N770:US$1 in early July.
“The CBN (according to official data) has the wherewithal to increase market intervention; 98 per cent of foreign reserves are liquid, and import cover is projected at 6 to 8 months in 2023. Based on this, we expect the currency to depreciate at a slower rate than fundamentals would imply over the medium to long run, given structurally high inflation.
“The average rate is forecast at N815:US$1 in 2024, sliding to N1,018:US$1 by end-2027, with a spread of 10-15 per cent against the black-market over the period.”
It also noted that rapid increases in inflation were expected from June 2023 as the price effects of market reforms transmit immediately into the system, even as it anticipated that the Monetary Policy Committee (MPC) would ramp up a monetary tightening cycle that began in early 2022, starting with the next meeting in late July.
“Interest-rate rises totalling 500 basis points are expected before end-2023, meaning 1,300 basis points will have been added since the cycle began and a peak rate of 23.5% – the highest level since 1993. However, this forecast is caveated with risks; the MPC attaches a large weight to economic growth in its decision-making formula, Mr Tinubu is opposed to high-interest rates, and the CBN’s independence is questionable.
“The small size of the financial sector (the private-sector credit/GDP ratio is just 22%) blunts the effectiveness of interest rates in countering inflation. We forecast that the CBN will maintain a tight stance until 2025, by which point disinflation and sustained monetary easing in advanced markets will justify aggressive interest-rate cuts to 14 per cent by 2026.
“Inflation will at all times be above the nine per cent target ceiling, but the CBN is expected to prioritise stimulus over its price stability mandate,” it added.
The EIU also forecast that Nigeria’s real Gross Domestic Product (GDP) growth will slow to 2.3 per cent in 2023 and 2.5 per cent in 2024, dragged down by rapidly rising inflation and a newly intensified phase of monetary tightening.
“Consumers and businesses will fail to adapt, causing domestic demand to contract for a second and third year running in 2023 and 2024, respectively. In a country with 2.5 per cent population growth, this marks an unusually long stretch of decline.
“Headline growth will be kept positive by net exports. Oil export volumes are expected to increase as security in the Niger Delta improves, complemented by the replacement of fuel and chemical imports in 2024 as a new refinery ramp up production,” it added.
In terms of the external sector, it noted that devaluation of the naira would support a widening of the current-account surplus in 2023 to 2.6 per cent of GDP, as import demand was compressed.
It added that without adequate FX supply and the Naira depreciating, petrol prices without subsidy could only go higher, adding that the impending protest and strike by organised labour may further worsen an already dire situation.
By Adedapo Adesanya
The United Arab Emirates has announced its decision to quit the Organisation of the Petroleum Exporting Countries (OPEC) to focus on national interests.
This dealt a heavy blow to the oil-exporting group at a time when the US-Israel war on Iran had caused a historic energy shock and rattled the global economy.
The move, which will take effect on May 1, 2026, reflects “the UAE’s long-term strategic and economic vision and evolving energy profile”, a statement carried by state media said on Tuesday.
“During our time in the organisation, we made significant contributions and even greater sacrifices for the benefit of all,” it added. “However, the time has come to focus our efforts on what our national interest dictates.”
The loss of the UAE, a longstanding OPEC member, could create disarray and weaken the oil cartel, which has usually sought to show a united front despite internal disagreements over a range of issues from geopolitics to production quotas.
UAE Energy Minister Suhail Mohamed al-Mazrouei said the decision was taken after a careful look at the regional power’s energy strategies.
“This is a policy decision. It has been done after a careful look at current and future policies related to the level of production,” the minister said.
OPEC’s Gulf producers have already been struggling to ship exports through the Strait of Hormuz, a narrow chokepoint between Iran and Oman through which a fifth of the world’s crude oil and liquefied natural gas supplies normally pass, because of threats and attacks against vessels during the war.
The UAE had been a member of OPEC first through its emirate of Abu Dhabi in 1967 and later when it became its own country in 1971.
The oil cartel, based in Vienna, has seen some of its market power wane as the US has increased its production of crude oil in recent years.
Additionally, the UAE and Saudi Arabia have increasingly competed over economic issues and regional politics, particularly in the Red Sea area.
The two countries had joined a coalition to fight against Yemen’s Iran-backed Houthis in 2015. However, that coalition broke down into recriminations in late December when Saudi Arabia bombed what it described as a weapons shipment bound for Yemeni separatists backed by the UAE.
By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc bested four price decliners on the NASD Over-the-Counter (OTC) Securities Exchange on Monday, April 27. The alternative stock market opened the week bullish during the session with a 0.03 per cent uptick.
According to data, the security depository company added N2.61 to its share price to close at N76.26 per unit compared with the preceding session’s N78.87 per unit.
As a result, the market capitalisation of the platform increased by N820 million to N2.425 trillion from N2.424 trillion, and the NASD Unlisted Security Index (NSI) gained 1.38 points to finish at 4,053.97 points compared with the 4,052.58 points it ended last Friday.
The four price losers were led by NASD Plc, which slumped by N3.80 to sell at N34.70 per share versus N38.50 per share. FrieslandCampina Wamco Nigeria Plc fell by N1.45 to N98.10 per unit from N99.55 per unit, Food Concepts Plc slid by 27 Kobo to N2.43 per share from N2.70 per share, and Geo-Fluids Plc dipped by 9 Kobo to N2.91 per unit from N3.00 per unit.
The value of securities transacted by market participants went down by 82.0 per cent to N7.4 million from N41.3 million units, the volume of securities declined by 28.5 per cent to 319,831 units from 447,403 units, and the number of deals dropped by 34.1 per cent to 29 deals from 44 deals.
Great Nigeria Insurance (GNI) Plc was the most active stock by value on a year-to-date basis with 3.4 billion units worth N8.4 billion, followed by CSCS Plc with 59.6 million units sold for N4.0 billion, and Okitipupa Plc with 27.8 million units exchanged for N1.9 billion.
Also, GNI Plc was the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Resourcery Plc with 1.1 billion units traded for N415.7 million, and Infrastructure Guarantee Credit Plc with a turnover of 400 million units worth N1.2 billion.
By Adedapo Adesanya
The first trading day of the week in the currency market was bearish for the Naira in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Monday, April 27.
Yesterday, it lost N5.80 or 0.43 per cent against the United States Dollar to trade at N1,364.24/$1, in contrast to the N1,358.44/$1 it was traded last Friday.
In the same vein, the Nigerian currency depreciated against the Pound Sterling in the official market by N13.70 to close at N1,847.72/£1 versus the preceding session’s N1,834.02/£1, and slumped against the Euro by N11.56 to sell at N1,602.29/€1 versus N1,590.73/€1.
Also, the Nigerian Naira tumbled against the greenback during the trading day by N5 to quote at N1,385/$1 compared with the previous rate of N1,380/$1, and at the GTBank FX desk, it traded flat at N1,370/$1.
The poor performance of the domestic currency could be attributed to liquidity shortage at the official currency market on Monday, which came amid surging demand for international payments. At $76.50 million, interbank liquidity printed higher across 79 deals, up from the $43.572 million reported on Friday.
Nigeria’s gross external reserves declined to $48.45 billion amid a month-long decline in inflows, amid uncertainties in the global commodity market. The depletion of foreign reserves could be partly attributed to the Central Bank of Nigeria’s intervention in the FX market.
The market remains perturbed by persistent concerns over liquidity constraints, policy transparency, and weakening confidence in Nigeria’s FX market, while boosters, including oil prices, continue to look rocky due to stalled discussions and unclear ceasefire negotiations between the US and Iran.
A look at the cryptocurrency market, Bitcoin (BTC) has been rejected near $79,000 three times in eight sessions, leaving the level as the de facto ceiling of its current trading range even as major cryptocurrencies trade lower over the past day. It lost 0.9 per cent to sell at $77,003.61.
Analysts say that upcoming US Federal Reserve policy decisions and top tech firms’ earnings this week could provide the catalyst to push bitcoin decisively above $80,000.
The market also continued to weigh Iran’s interim deal proposal to reopen the Strait of Hormuz, which failed to advance over the weekend. The White House said US officials were discussing the latest Iranian proposal but maintained “red lines” on any deal to end the eight-week war.
Solana (SOL) dropped 1.8 per cent to $84.25, Ripple (XRP) went down by 1.6 per cent to $1.39, Ethereum (ETH) depreciated by 1.3 per cent to $2,290.00, Binance Coin (BNB) declined by 0.5 per cent to $625.18, and Cardano (ADA) fell by 0.2 per cent to $0.2480.
However, Dogecoin (DOGE) rose by 2.0 per cent to $0.1002, and TRON (TRX) appreciated by 0.2 per cent to $0.3242, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
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