Naira is 12% cheaper by value, says Rencap

FOR the fact that most of the foreign exchange (FX) adjustments to reflect lower commodity prices have been carried out by Sub Saharan African countries, especially Nigeria, analysts at Renaissance Capital have said that  the naira, as a result, is now cheaper than its current value.

According to a top analyst Rencap, the local currency is 12 per cent undervalued, as suggested by the real effective exchange rate (REER) model. “We think a stronger external sector implies FX stability in the short term, so we revise our year end (YE18) forecast to NGN360/$1, vs NGN373/$1 previously. This supports softer inflation of 11-12per cent in 2018.

In a  RenCap report titled:   “ Sub-Saharan Africa in 2018 – Brisker growth, monetary easing,” the global fund manager stated.

The firm further advised Nigeria and other SSA countries to start  rebuilding of savings in .

It said there are high prospects of recovery in Africa.

“We expect the recovery to be driven by Nigeria, where we now forecast 2.9 per cent growth, vs 2.0per cent previously, owing to a more accommodative policy stance, a stronger external sector and more balanced growth as the consumer recovers.

“We also expect SSA inflation, on average, to fall back to the single digits, owing to more stable commodity currencies and improved food output in East Africa. This is in part why we expect monetary policy easing in Nigeria, Kenya and Ghana,” Rencap noted.

SSA countries, particularly commodity exporters, should begin to rebuild savings in 2018, on the back of improving prices the firm stated.

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