Within the following six months, the Central Bank of Nigeria (CBN) may raise the benchmark interest rate by up to 200 basis points to 15%.
In its second-half macroeconomic prognosis for Nigeria, Vetiva Capital Management Limited predicted that the CBN will raise the Monetary Policy Rate (MPR), which is now at 13%, by 100 to 200 basis points to between 14% and 15% in the second half of this year.
Vetiva analysts stated that their monetary prediction was based on “past historical examination of rate rises throughout the present CBN Governor's tenure” in light of the evolving macroeconomic climate.
Vetiva asserted that historical tendencies synchronized between monetary policy normalization and geopolitics on the global stage, local oil shocks, and decreasing development on the home stage.
“This lends validity to our forecast that the top bank would raise the benchmark rate by 100 to 200 basis points to 14 to 15% in H2'22,” Vetiva said.
Vetivat predicted that the naira will fall to N440 per dollar at the official Investors & Exporters (I & E) Window.
According to commentators, using a changing NAFEX rate helps to keep the naira from being massively overvalued before important changes are made, since the overvaluation of the NAFEX-6% is lower than the defunct de-facto peg of N379 per dollar-17%. As a result, no large downward modifications in the official value of the naira as it was in 2016 are possible.
On the parallel market, experts noted that the CBN's restoration of currency supplies to Bureau de Change operators remains a wild card the CBN might play in the second half of 2022, particularly if Nigeria's oil output increases stably.
“As a result, the parallel market rate might rise significantly to N520 per dollar.” However, our base case projection is based on a continued ban on BDCs, which may force the naira to hit new all-time highs in the parallel market of N630 per dollar.
“Using economic and financial market values, we conclude the naira is overvalued in the official market, implying depreciation, and undervalued in the parallel market, implying appreciation.” This is why speculative dollar hoarding is a lousy investing strategy, especially when fundamentals normalize. As a result, “enough exposure to local, international, and alternative assets, such as commodities, might help limit losses from naira volatility,” Vetiva added.
On a worldwide scale, Vetiva's Sub-Saharan Africa Economists, Ibukun Omoyeni and Angela Onotu, assessed the consequences of Ukraine-Russia tensions and monetary policy normalization: increasing inflation, tight financing conditions, risk-off emotions, and a slowdown in global economy.
They pointed out that with inflation at new highs, the Fed's increasingly hawkish posture, paired with a stronger currency, presents significant problems for developing and frontier economies.
The paper stated that the fighting economies of Russia and Ukraine account for 3.6% of African imports, and that despite the little exposure to these countries, constricted supply from these economies implies that prices of these items, the majority of which are necessary, would rise.
While the war places enormous pricing and external strain on African economies, analysts believe that economies with floating currencies and volatile fuel prices, such as Ghana and South Africa, will suffer the most, while economies with fuel subsidy regimes, such as Nigeria, Kenya, and Angola, may face increased fiscal strain.
According to Vetiva, the economy would rise by 2.7% this year, owing to favorable base effects, variable oil output, and steady growth in active GSM lines.
“Global food shortages, protracted fuel shortages, new energy crisis, increased electricity prices, and lower currency rates pose significant threats.” “Despite these variable results, our basic forecast for inflation in 2022 is 17.50 percent,” Vetiva noted. However, persistent gasoline shortages may push inflation up to 19% in the worst-case scenario.
The research on Nigeria's impending general elections observed that, despite rising voter registrations, the voter turnout ratio has continuously dropped since 2003. “Aside from voter turnout, a casual look at the economic outcomes of prior elections reveals one clear reality – economic performance is primarily connected to the performance of the oil industry,” Vetiva remarked.
Vetiva is a pan-African financial services corporation based in Nigeria that is fully regulated and authorized by the Securities and Exchange Commission (SEC) to operate as an issuing house and financial adviser.
Furthermore, the SEC has registered the company's subsidiaries to function as fund and portfolio managers, trustees, and broker and dealer.
