Naira Volatility Undermines Economic Stability – FDC

Proshare

Tuesday, March 08, 2016 09:21 AM / FDC

The naira has oscillated like a swinging pendulum in February. After going as low as N405/$, it has recovered to N320/$ this week. Investors, traders and manufactures are jittery as to if and when an official currency adjustment is likely to happen. At the official window, the CBN is publishing a list of beneficiaries of IFEM, but the market remains wary.

The inflationary impact of a weaker naira has taken its toll on the economy. We expect a sharp increase in inflation with a best case scenario of 9.8% or worst case of 10.2%.

With oil prices at $40pb, 42.8% higher than January lows of $28pb, the picture for the naira looks much brighter. The currency should appreciate in the parallel market if the CBN can use all the resources in a transparent and orderly manner. Thus, reducing the perception of abuse in the market.

The MPC meeting on March 21 should be more open to address the question of currency misalignment from the negative balance of trade perspective. In the meantime, manufacturers are hoping for the best and praying that oil prices remain above $40pb through the next quarter.

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