EUR 9.24 For Business Accounts Only

Shaky NGN outlook as CBN resumes playing ostrich

In today’s cut-out of our core strategy document – The Nigeria Strategy Report, we continue with the review of Nigerian macroeconomic environment by examining movements in the naira over H2 2016 and delineating our expectations for same over 2017.

In our H2 16 Nigerian Strategy Report, we noted that despite a 42% drop in USDNGN in H1 16, subsisting current account (CA) and capital account weaknesses leave sizable scope for a 5-10% NGN depreciation over the second half of 2016. In line with this thesis, the naira slid 8% in H2 16 to N305/$, bringing YTD depreciation to 53% and making the currency one of the worst performing in 2016. Specifically, on the heels of CBN’s liberalization of the FX market, the naira shed 14% over July to N321.16/$ as downside pressures from the weak current account and capital flows (-54% MoM to $278 million) impacted interbank dollar supply. However, increased CBN’s intervention at the FX market ensured the naira at the interbank held steady at N305/$ for the latter part of the year. In contrast, CBN’s heavy-handedness at the parallel market which further constrained supply as well as rising spillover demand from the interbank underpinned a 39.2% naira weakness over H2 16, driving mean premium over the interbank exchange rate to 61% at the end of the year vs. 23% in H1.