The naira is set for a smooth sail against other currencies from now till a greater part of 2018. This could spell doom for hoarders including politicians who may have reserved some of such currencies for the 2019 electioneering.
The positive outlook is riding on the back of resurging reserves’ profile, now nearing $41 billion, and stable crude oil prices at the international market, oscillating between $68 and $71 per barrel.
It is also bolstered by the sustained management of the foreign exchange (forex) market, which has reduced the country’s import bill to $1.5 billion monthly from a record high of $5.5 billion as at February 2017. This is as items like rice, starch, toothpick and margarine are being substantially controlled in the importation bill and produced locally.
Besides, the near convergence of the three major forex markets: the inter-bank; licensed bureau de change; and roadside hawkers (black market), is raising new hopes of further appreciation of the naira, with more forex supply from both official and autonomous sources.
Financial experts insist it is foolhardy for anyone to hold on to the dollar because economic fundamentals are in strong support of the local currency, irrespective of outstanding macro challenges.
Economist and academic at Caleb University, Prof. Segun Ajibola, however, expressed concern about the sustainability of the naira’s optimistic outlook, even though he admitted the local unit remains on a cheery path.
“Ordinarily, a country’s resources help to determine the strength of its currency. The reserve is rising on the back of the present stability in the crude oil market and the naira is gaining strength. But how sustainable is it?
“We must rise to the point of strengthening our local currency, independent of oil considerations. What if there are challenges in the Niger Delta? How much of our exports are in the reserves’ pool? These are the things that fuel speculations. For now, it is good, but it is too early to conclude,” he said.
The Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, said the encouraging stance of the naira, especially in the next six months, is a clear warning against holding the dollar.
“I doubt if any investor or anyone interested in speculating in the foreign market is holding back the dollar now. Even the fragmented forex market is gradually converging. It would be a wrong calculation to do so now,” he said.
He stressed, however, that political activity could alter the equation, depending on the time of the year when 2019 politicking moves in to top gear. He noted that using the dollar for electioneering would put pressure on the parallel market. “Maybe, in the third and fourth quarters, there might be a renewed pressure on the exchange rate,” he said.
A research analyst at Cyprus-based FXTM, Lukman Otunuga, stated that the naira marched into the New Year on a sound footing and is set to appreciate further, as investor confidence in the health of Nigeria’s economy improves.
He said with external reserves now above $40 billion and crude oil prices trading at levels not seen in over two and a half years, these positive events are fuelling the naira’s upside.
“When we keep in mind how the implementation of the importers and exporters foreign exchange window (NAFEX) has improved dollar liquidity and promoted stability, the naira’s outlook for 2018 is encouraging.
“The combination of easing inflationary pressures, improving economic growth, and steadily increasing investor confidence should continue to support the naira moving forward.
“Those hoarding the dollar could be in a world of pain, if it continues to depreciate this year. It must be kept in mind that the dollar’s weakness was a dominant market theme in 2017 and could continue in 2018, if ongoing concerns of low inflation in the U.S. weigh on the prospects of higher interest rates,” he said.
Analysts at CSL Stockbrokers Limited noted: “Our 2018 economic forecasts paint a better picture relative to 2017. We see forex supply remaining sufficient, to ensure there is not a return to de facto capital controls that were in place in 2015-2016.”
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