NGN: Manageable Pressure With Downside Risks
BMI View: The naira will remain volatile over the next six months as downside pressure will emanate from the approach of elections and shifting global financial market sentiment. However central bank support will prevent the unit from depreciating significantly. Pressure should subside after the election but uncertainty over the trajectory of monetary policy poses risks to this view.
Short-Term Outlook (three-six months)
The naira has experienced volatile trade during the first half of 2014, continuing its form from the second half of 2013. We believe that volatility will continue to be the dominant theme for the remainder of the year as fundamental downside pressure stemming from the approach of elections persists. The authorities have sufficient reserves to prevent meaningful depreciation on the interbank market and to keep that rate within sight of their NGN155.00/USD +/- 3% target rate. With Nigeria's macroeconomic and political stability in sharp focus as the early-2015 vote approaches, the central bank will want to use these resources to prevent the naira from succumbing to depreciatory pressure over the coming months as significant depreciation would be a clear signal of distress politically and economically. With this in mind, although trade is likely to be volatile, we do not expect the currency to fall too far below NGN165.00/USD during the remaining months of 2014.
|Volatile 12 Months For Naira|
|Nigeria - Exchange Rate, NGN/USD|