Naira Dips by 221.34% in 12-Month, Fluctuation Fuels inflation
The depreciation of the Nigerian naira fueled inflation surge in the country, though analysts are expecting moderation in consumer price index in the coming month.
In the last 12 months, the naira has lost more than 221% of its purchasing power following a decision to devalue the local currency.
The local currency had been devalued amidst claims that the erstwhile governor of the Central Bank of Nigeria (CBN) spent $1.5 billion per month on the average to defend the local currency.
But then, exchange rate was bearable for FX users, including manufacturing concerns and other import dependent companies. Since devaluation, things have gotten worse, and analysts predict that exchange rate outlook depends greatly on FX liquidity in the official window.
Due to price instability; partly driven by negative performance of the local currency, Nigeria’s key macroeconomic data has turned red.
Private sector’s economic condition has worsened with uncertain outlook due to lack of policy strategy to alleviate endemic poverty in the country.
“Companies are reporting higher revenue but low volume growth – in real term, that’s no growth because population is not on decline…3% GDP growth rate is abysmally low for a country like Nigeria”, LSintelligence Associates said in a chat with MarketForces Africa.
In the coming month, inflation is anticipated to persist in its declining growth rate due to ongoing food supply shocks, high demand from the Eid-Mubarak festive period, and the upcoming increase in the minimum wage, SAMTL said in its market update
Exchange rate fluctuation is expected to reduce in the coming days, according to analysts. This blue projection was anchored on second tranche inflow of $925 million out of the $3.3 billion crude oil-backed loan agreement received from the African export import bank.
In addition to $2.25 billion World Bank loan approval, analysts said they expect these sizeable inflows to drive FX stability and be a drag to prices.
Nigeria’s FX reserves recorded accretion, as the gross reserves level increased by USD273.77 million to USD33.16 billion. Likewise, the naira appreciated by 0.1% week on week to N1,482.72 at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
As of Thursday, the total turnover at the market declined by 46.4% from the beginning of the week to USD683.83 million, accor4ding to Cordros Capital Limited with trades consummated within the N1,400.00 – N1,505.00 per dollar band.
“Whilst no inflows from the CBN were recorded in the week, we point out that the naira traded with less volatility primarily due to reduced demand pressure and moderate inflows from autonomous sources.
“In the short term, we anticipate a strengthening of the naira, given the World Bank’s approval of a USD 2.25 billion loan, of which a first tranche of the loan is expected to follow, potentially supporting the CBN’s ability to boost FX liquidity.”, the firm stated. #Naira Dips by 221.34% in 12-Month, Fluctuation Fuels inflation
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