New Report Rules out Naira Devaluation in 2020 - THISDAY

FEBRUARY 26, 2020

Says CBN has forex buffers, tools to keep naira stable

By  Obinna Chima

A new report has revealed that naira devaluation is unlikely in 2020 despite it being nine per cent overvalued and a deteriorating external position.

The report by analysts at Renaissance Capital (RenCap), one of the leading emerging and frontier markets focused investment banks, has also shown that the Central Bank of Nigeria (CBN) has enough foreign exchange reserves buffers and monetary policy tools to keep the naira from depreciating in the short term, despite concerns about the drop in the country’s reserves to $36.5 billion as of Monday.

In the seven-page report, dated February 25, 2020, after their recent visit to Abuja earlier this month where they met key policymakers and development finance institutions in the country, the analysts also stated that it decided to revise its forex forecasts, adding that they “expect growth to be flat at 2.3 per cent in 2020.”

“We came away from our visit with the view that the central bank will strive to maintain a relatively stable naira, by using the tools at its disposal. It is for this reason we revise our 2020 FX rate forecast to N375/$1, from N429/$1 previously.

“The good news is that there has been no front loading of imports yet, implying there is no sign of pressure on FX yet. We believe the government has the FX reserves buffer and monetary policy tools at hand to keep the naira from depreciating to its fair value, in the short term,” the firm explained.

They added that the proposed $3.3 billion Eurobond to be issued by the federal government in the coming months would further help to shore up both the reserves and the naira.

They, however, said the downside risks to the naira was forex swaps of between $4 billion and $6 billion, which implied that, “accessible reserves are 10-15 per cent lower than the gross number suggests.”


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