Analysts predict further gains for Naira in 2017, weaker in YE18

Some group of financial analysts at Renaissance Capital limited have forecasted a stronger external sector and tighter monetary policy imply the Nigerian currency, Naira appreciation risk in the Year end 2017 (YE17)  forecasted to NGN332 to the dollar, while the local currency in the short-term strength, weaker in 2018.

The analysts explained that a weaker naira for year-end 2018 on presumed accommodation policies prior to the February 2019 elections.

However, in a review of their foreign exchange forecasts for Sub-Saharan Africa in the last eight months of the year published this week, the analysts noted that they assume an accommodate monetary policy ahead the 2019 elections in 2018, which would make the local currency trade N373 to the dollar in 2018.

“We assume accommodative policy in 2018, ahead of the February 2019 elections and expect the NGN to trend weaker to NGN373/$1 at YE18. That said, we think the naira will become less cheap, in real terms, in the short term,” they said.

They equally stated that the Nigerian naira in eight months to August was among the worst performers in sub-Saharan Africa, including the Congolese franc (CDF), the Malawi kwacha (MWK), while The Kenyan shilling (KES) was seen remarkably stable despite the politics.

The naira’s underperformance, according to them is due to the adjustment of the interbank FX rate to NGN360/$1, from NGN315/$1 previously in early August.

They said their opinions rely on real effective exchange rates (REER), which help gauge how a currency stacks up against a trade-weighted basket of currencies, explaining that it is based on purchasing power parity theory, and the idea a currency adjusts to its fair value in the long run.