Otunuga: Defending the naira may become a headache for CBN

Lukman Otunuga, FXTM research analyst, says the Central Bank of Nigeria (CBN) may find it hard to defend the naira against an appreciating dollar, regardless of its resilience.

The naira has maintained stability in the foreign exchange (forex) market owing to a series of interventions by the apex bank.

In October, Godwin Emefiele, CBN governor had said the central bank prefers to save the naira than build reserves.

But commenting on the trend Tuesday, Otunuga said while keeping the naira relatively stable, forex reserves have slipped to the lowest level in the last eight months.

“The Naira continues to witness stability against a broadly stronger Dollar despite other emerging market currencies feeling the heat. While the Naira’s resilience is somewhat encouraging, the price paid to keep the local currency buoyed is becoming increasingly discouraging,” he said.

“Defending the Naira has sent the nation’s foreign exchange reserves slipping to an 8-month low. With Oil prices briefly entering a bear market last week, it may become a headache for the Central Bank of Nigeria to defend the Naira against an appreciating Dollar.”

Otunuga said investors will keep a close eye on Nigeria’s three-day Bond roadshow in London which kicks off on Monday.

He said confidence over the recovery of Nigeria’s economy could receive a boost if the roadshow proves to be successful and “enough funding is received to help with the implementation of the 2018 record high budget.”

The research analyst noted that there will be a special focus on Nigeria’s inflation figures which will be announced on Wednesday, adding that it “could impact speculations over whether the Central Bank of Nigeria will cut interest rates before year end”.

“Signs of rising inflationary pressures are likely to push expectations of a CBN rate cut in 2019, possibly before the presidential elections,” he said.