THE Naira, on Tuesday, crashed slightly against the American Dollar at the parallel market.
This is just as the naira has been described by analysts at Renaissance Capital (RenCap) as being cheap and undervalued at the interbank rate of about N360 to dollar.
According to currency traders, the naira weakened to N367 per dollar in the parallel market from the previous rate of N365. The local currency also weakened against the Pound Sterling to trade at N476 as against the previous rate of N472.
At the Bureau De Change segment, the local currency settled at N367 to a dollar, N477 to the British pounds and N438 to the Euro.
Meanwhile, RenCap in its 13-year real effective exchange rate model concluded that a stronger external sector and tighter monetary policy imply that naira should be stronger in the near term.
According to RenCap, the tighter naira liquidity indicated by year on year money supply (M2) growth falling to 0.1per cent in July vs 22per cent a year earlier, has also given the currency support.
“We expect the naira to strengthen as we approach year-end. Accordingly, we revise our YE17 FX rate forecast to NGN332/$1 vs NGN447/$1 previously,” the global funds managers said.
However, RenCap warns looser monetary policy in 2018 implies a weaker naira, stressing that its foreign exchange (FX) model predicts a rate of NGN373/$1 at YE18, assuming monetary policy becomes accommodative and little upside for the external sector.
“We think it is probable that instead of appreciating in the near term, the naira weakens gradually to NGN373/$1 at YE18, which would signal price stability,” it further stated.
The central bank governor, Godwin Emefiele, expressed a desire for policy easing in a mid-2017 Monetary Policy Committee (MPC) statement, but thinks appropriate liquidity conditions should precede it.
RenCap believes the year to date tightening of naira liquidity is the paving of the path towards rate cuts.
“We also think there is limited upside for the external sector in 2018, and by implication the naira, for two reasons: we see the oil price moving sideways at $50/bl; and think oil output is close to its short-term peak of 2.0-2.1Mbd,” said analysts at RenCap.
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