CEM REPORT, FINANCE | Businesses in Nigeria will have to brace themselves as the Naira (₦) has been predicted to remain volatile, especially against the US Dollar ($).
The continued volatility of the market has been attributed to uncertain policy directions and external debt pressures.
This is according to Stears’ Africa FX Monitor in its latest report released on Thursday.
“Based on our comprehensive assessment, we foresee continued volatility in the USD:NGN pair due to uncertain policy directions and external debt pressures.”
The volatility of the currency was also attributed to a non-transient phenomenon influenced by liquidity conditions but perhaps part of a longer-term trend reflecting systemic policy inconsistencies.
The FX monitoring body noted that the current ₦980 traded on the black market is a 28 per cent divergence from the official rate
It added that the divergence is resulting from the struggle of the Central Bank of Nigeria (CBN) with broad money supply growth which is rendering formal monetary stances ineffective.
“The USD:NGN rate has seen a significant depreciation, currently standing at 980 (at the parallel market), representing a 28% divergence from the official (I&E) rate of 768 despite significant FX market reforms.”
“The divergence in these rates can be attributed to varying domestic liquidity conditions. For instance, Nigeria has struggled with broad money supply growth, rendering formal monetary stances ineffective.”
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It also said that “these divergences are not merely statistical points of interest but rather critical indicators of underlying economic forces, policy decisions, and even geopolitical events.”
It advised the Nigerian government to examine foreign exchange markets through multiple temporal lenses is crucial recalling the NNPC Limited’s announcement that it had secured a $3 billion deal with AFREXIM Bank to help meet the country’s FX needs which appreciated the naira by about 10% in a week to ₦860.
The report revealed that South Africa, has preempted market trends, leading to a more stable exchange rate.
“These nuances, often overlooked, are critical for investors and policymakers alike. For instance, increased system liquidity in Nigeria due to a partial relaxation of unorthodox monetary policies of the previous administration has seen fixed-income yields remain low despite sustained interest rate hikes.”
This prediction comes despite the unification of the exchange windows and other monetary policy reforms.
Commenting on the report Head of Insights at Stears, Fadekemi Abiru said that the foreknowledge of the volatility of the FX market will help Nigerian businesses in making informed decisions.
“Stears’ Africa FX Monitor serves as a vital tool for understanding and responding to the Naira’s fluctuations. The continued unpredictability of the Naira underscores the importance of timely and informed decision-making for businesses and investors in Nigeria.”