RenCap said this before
In its risk case scenario, the firm said "Although our base case is for no devaluation in 2014, there is a risk that the new
According to the firm, like
"However, we think Foreign Exchange (
The firm highlighted that
"We believe they will likely fall further in 2014 on the back of subpar oil production and higher imports due to election-related spending. We think the cumulative deterioration in
"The governor sees no obvious advantage for
"A CRR hike at the March MPC is a real possibility. This stance is contrary to a central bank that may be considering a weaker naira" RenCap added.
There has been increased currency pressure since the removal of the limit on dollar sales to Bureau de Changes' (BDCs) in 2013, according to Bismarck Rewane, Finance analyst and Managing Director,
"The impact was a sharp depreciation in the naira from N162-176/$ at the parallel market. In the informal market where retail trade inventory is mainly financed by dollars sourced in the parallel market, the prices of goods is directly linked to the value of the naira in the parallel market. In December, some traders had slowly started re-pricing their inventory based on a weaker naira. The effect of this re-pricing was not apparent because of the seasonal Christmas price increases," he said.
According to him, furthermore, a depreciating naira and depleting external reserves will have a negative impact on the non-food basket.
"The Central Bank Governor has already expressed concerns on the depleting external reserves and has reiterated his determination to defend the naira. However, if the depletion in external reserves continues, an adjustment in exchange rate becomes inevitable. The question on everyone's lips is when and by how much the currency will depreciate especially at a time when the parallel market rate has appreciated from N176/$ to N170/$ and the interbank exchange rate has moved in the opposite direction to N167/$," he said.
He said the MPC will meet March 17/18 or even earlier if an emergency meeting is called, to review its current monetary policy stance, adding that all indicators are that the markets are in for a bumpy ride in February and March.
"Currency will remain stable in quarter two (Q2) until
Editor's Note: The RenCap report and all content of this story were done before the suspension of
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