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
NASD Over-the-Counter (OTC) Securities Exchange remained in the negative territory after it further depreciated by 0.64 per cent on Friday, July 24, despite recording four price gainers.
The NASD Security Index (NSI) dropped 27.4 points at the close of business to settle at 4,294.75 points versus the previous day’s 4,383.48 points, while the market capitalisation gave up N16.49 billion to end at N2.577 trillion, in contrast to the N2.594 trillion it ended a day earlier.
The bourse was down during the session amid heavy sell-offs, with the volume of transactions skyrocketing by 693.9 per cent to 2.99 million units from Thursday’s 377,635 units.
Equally, the value of trades went up by 71.6 per cent to N69.4 million from N40.4 million, and the number of deals increased by 41.0 per cent to 55 deals from the preceding day’s 39 deals.
Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units worth N8.4 billion, trailed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and Central Securities Clearing System (CSCS) Plc with 75.6 million units traded for N5.4 billion.
GNI Plc was also the most active stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, trailed by Infracredit Plc with 2.3 billion units transacted for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
The market ended the session with four price gainers and two price losers, led by FrieslandCampina Wamco Nigeria Plc, which lost N7.44 to trade at N136.19 per share compared with the previous day’s N143.63 per share, and CSCS Plc, which declined by N1.64 to N93.63 per unit from N95.27 per unit.
But MRS Oil gained N13.50 to sell at N148.50 per share versus N135.00 per share, Afriland Properties Plc advanced by 56 Kobo to N17.41 per unit from N16.85 per unit, UBN Property Plc surged by 18 Kobo to N1.93 per share from N1.75 per share, and Food Concepts Plc climbed by 1 Kobo to N2.50 per unit from N2.49 per unit.
By Dipo Olowookere
Nigeria’s stock exchange succumbed to profit-taking on Friday, losing 0.19 per cent when the closing gong was hit at 4 pm.
Shares in the banking and energy sectors influenced the decline suffered by the Nigerian Exchange (NGX) Limited during the session, as they respectively closed lower by 0.40 per cent and 0.04 per cent.
The industrial goods index was flat yesterday, while the insurance counter gained 0.68 per cent and the consumer goods space chalked up 0.25 per cent. The gains by these two segments could not keep Customs Street in the green territory at the close of business.
As a result, the All-Share Index (ASI) retreated by 474.00 points to 247,357.40 points from 247,831.40 points, and the market capitalisation decreased by N306 billion to N159.588 trillion from N159.894 trillion.
Presco dropped 10.00 per cent during the trading day to close at N2,070.00, Thomas Wyatt crumbled by 9.93 per cent to N3.63, Trans-Nationwide Express plunged by 8.44 per cent to N2.82, Royal Exchange slipped by 7.86 per cent to N1.29, and LivingTrust Mortgage Bank shrank by 7.32 per cent to N3.80.
On the flip side, C&I Leasing improved by 9.48 per cent to N6.35, Cornerstone Insurance rose by 9.09 per cent to N6.00, RT Briscoe jumped by 8.61 per cent to N13.25, Honeywell Flour expanded by 7.38 per cent to N17.45, and Africa Prudential increased by 6.98 per cent to N13.80.
Despite the poor performance, the local bourse recorded a positive market breadth index after finishing with 35 price gainers and 25 price losers, representing strong investor sentiment.
It was a relatively quiet market on Friday, as the activity level dropped, with the trading volume down by 27.72 per cent to 565.5 million units from 782.4 million units, and the trading value contracted by 46.89 per cent to N29.9 billion from N56.3 billion, while the number of deals executed by investors soared by 16.03 per cent to 53,688 deals from 46,273 deals.
Access Holdings was the busiest stock for the session, with a turnover of 128.0 million units sold for N3.8 billion, First Holdco transacted 35.4 million units worth N4.3 billion, Chams exchanged 34.8 million units valued at N154.3 million, Zenith Bank traded 30.4 million units for N3.9 billion, and UBA sold 30.4 million units worth N1.5 billion.
By Adedapo Adesanya
The Naira marked a whole week of appreciation against the United States Dollar on Friday, July 24, further gaining N5.67 or 0.41 per cent to close at N1,362.09/$1 in the Nigerian Autonomous Foreign Exchange Market (NAFEX) compared with N1,367.76/$1 it ended on Thursday.
Equally, the local currency appreciated against the Pound Sterling in the official FX market yesterday by N10.83 to trade at N1,813.62/£1 versus the preceding day’s N1,824.45/£1, and improved against the Euro by N7.68 to settle at N1,549.10/€1, in contrast to the N1,556.78/€1 it was exchanged a day earlier.
However, at the parallel market and GTBank forex counter, the Nigerian currency remained unchanged against the greenback during the session at N1,400/$1 and N1,379/$1, respectively.
The Central Bank of Nigeria (CBN) buffer has been strengthened with sustained foreign portfolio inflows and robust foreign reserves, which stand above $52 billion.
The apex bank’s policy signals that the Naira will be stronger in the near term, with Nigeria clearing hurdles with FX reforms and settlement of all backlogs.
However, some traders expect that pressure may come due to foreign-currency buying from fuel importers as they make Dollar purchases to build inventories.
Meanwhile, Bitcoin (BTC), in the digital currency landscape, trimmed recent gains as it fell by 2.3 per cent to $63,787.73.
The weak action in the AI momentum trade is feeding through to crypto as well.
Further, Cardano (ADA) dropped 3.7 per cent to close at $0.1615, Solana (SOL) dipped by 2.8 per cent to $73.71, Ripple (XRP) crashed by 2.3 per cent to $1.08, Ethereum (ETH) slid by 1.9 per cent to $1,851.58, Dogecoin (DOGE) retreated by 0.8 per cent to $0.0694, Binance Coin (BNB) contracted by 0.7 per cent to $564.18, and TRON (TRX) lost 0.5 per cent to trade at $0.3292, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
