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Analysts rule out naira devaluation in 2020, say CBN may harmonise the official and I&E rates

A towel with a print of the Nigerian naira is displayed for sale at a street market in the central business district in Nigeria's commercial capital Lagos February 4, 2016. REUTERS/Akintunde Akinleye/File Photo
  • Nigerian naira to remain stable at the foreign exchange market in 2020, analysts have predicted.
  • Analysts at United Capital see the CBN harmonising the naira rates rather than devaluation this year.
  • With CBN’s continued support, they expect the naira to stay between N360-N365/$1 levels.

Nigerian naira to remain stable at the foreign exchange market in 2020 on continued interventions by the Central Bank of Nigeria (CBN), analysts at United Capital Limited predicted.

In its latest research released on Monday, January 6th, 2020, titled, “Nigeria Outlook 2020: A Different Playing Field,” United Capital Limited predicted that the CBN will rather harmonise the Investors’ & Exporters’ FX Window (I&E) and official rates.

On the exchange rate and capital flows, we expect the CBN to continue to support the naira at N360-N365/$1 levels, by selling OMO bills to Foreign Portfolio Investors (FPIs) as a strategy to preserve the reserves at decent levels.

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“At the current run rate, this can be sustained for another 7 to 9 months, all things being equal.”

On the impending discussion around devaluation, analysts at United Capital opined that a currency devaluation is unlikely in the immediate-term. They believed the CBN can still harmonise the official rate at N305.5 per dollar to something closer to the I&E rate at N360.0/$1.

“...the adjustment may not affect the market rate by more than a spread of 2% to 5% to the official rate. Overall, our outlook for the naira is stable in the near term.

FBNQuest says CBN’s FX reforms have improved fx liquidity and stability of exchange rates in operation.

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In a similar prediction, researchers at FBNQuest noted that the currency market remains firmly placed on the government's front burner.

They believed the CBN’s fx reforms have improved fx liquidity and stability of the several exchange rates in operation.

To continue to attract more capital inflows and maintain exchange rate stability. FBNQuest believes a more conducive macro-environment stance is required.

In 2019, the Central Bank of Nigeria (CBN) said it will continue to defend the naira at the currency market.

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The nation’s foreign reserves fell by $4.48 billion, closing at $38.6 billion from $43.1 billion, the amount it opened on January 2.

Godwin Emefiele, CBN governor, had attributed the sharp decline on overdependence on crude oil for fiscal revenue and forex inflows, which were largely impacted by shocks in the oil market.

The currency market and the rate of Naira serve as one of the determining factors for the Nigerian economy, and its depreciation or devaluation will bitter harder on an individual’s income.

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Considering minimum wage at a stagnate rate, any depreciation in the value of Naira will affect citizens’ pockets, the price of goods will skyrocket, in dollar terms, and businesses and companies may be forced to downsize, thereby increasing unemployment and poverty level.

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