FDC predicts more pressure for Naira, negative year-end results

A Lagos-based financial service advisory firm Financial Derivatives Company Limited led by frontline economist, Mr Bismark Rewane has predicted that the naira will slip to N520 to the dollar in the parallel market as attempts to use forwards contracts to stabilise the market will be futile.

It also predicted that the stock market will trade flat to negative again in February and that more surprising negative results will be announced in March by most quoted companies and the banks.

In its bi-monthly business update at the end of the breakfast session with finance and economy experts at the Lagos Business School, the FDC noted that the Forex market is polluted and needs sanitisation, adding that as it stands, the CBN will need to fund the spot market consistently if stability is expected in that segment.

The local currency traded flat at both official interbank window and parallel market, with black market traders quoting the naira flat at N498 to the dollar, but finally settled at N500/$. Commercial lenders quoted the currency at N305.25 a dollar, about the level it has traded since August.

Rewane in a separate note observed that the naira under the current market regulatory framework will remain unstable until the market is allowed to operate efficiently.

Forex policies according to him usually complement trade and investment policies. The Nigerian government will in 2017 he added, strive towards greater coordination of these policies, and will move from its current bias for a command economy monetary policy towards a mixed economy.

“I believe that with oil prices at $55pb and production back up to 2mbpd, the naira will slip in the interbank markets to

N350-N380/$. It will fall in the parallel market to N520/$ before recovering sharply to N425/$.

“These projections are based in the assumption that the market will be reformed and that sanity will return to what is now essentially a foreign exchange asylum, “he noted.

Meanwhile, the CBN has maintained its stand not to allow the naira to freely float in order to prevent a situation whereby inflation will become unbearable for citizens.

The apex bank also insists that it will not remove some 41 items on the list of those ineligible for import through the official foreign exchange window.

There have been local and international pressures on CBN from currency speculators, traders, consultants and politicians to allow the currency to freely float as a way of easing foreign exchange scarcity that has hit the country.

Speaking with Nigerian Tribune, Acting Director of Communications at the apex bank, Mr Isaac Okorafor said there was no reasonable justification to allow the naira to float in the market given that Nigeria is mainly an import dependent country.

He explained that the current high level of inflation in the economy was mainly imported as a result of naira depreciation and that the situation would escalate further should CBN allow further depreciation.

“What we have in the economy now is managed float,” CBN Governor, Mr Godwin Emefiele had explained during a press briefing shortly after the last Monetary Policy Committee (MPC) meeting in Abuja.

In the same vein, other analysts have argued that the Nigerian economy is import-dependent with very little non-oil exports and currency-free float will not change this narrative.

Therefore, any attempt to leave the exchange rate completely to market forces will spell doom for an economy already bleeding from all sides.