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By Chinwendu Obienyi
Amid the low supply of forex, rating agency, Augsto & Co, has projected that the exchange rate of the naira to the dollar is expected to converge at N1100/$1 at the official market at the end of 2024.
This is even as the agency stated that it expects the CBN’s Monetary Policy Committee (MPC) to raise interest rates to 19.5 per cent before the end of the year.
The agency disclosed this in its monthly newsletter for January titled, “2024: A year of reckoning, turning points and balancing acts” where it made projections on different aspects of the economy ranging from foreign exchange to inflation, GDP growth amongst others.
While stating that external imbalances would persist, the agency stated that the risk of further depreciation of the naira looms large despite expectations of higher export earnings from improved oil production and still high oil prices. It however, noted that capital inflows would likely remain constrained on low investor confidence as forex illiquidity lingers.
The agency said, “The CBN has committed to intermittently boost forex liquidity and we believe that the recent receipt of a $2.25 billion forex support facility from Afreximbank, anticipated inflows from the World Bank and proceeds from dividend securitisations from the NLNG will support in this regard.
This amount represents 12.5 per cent of the estimated $18 billion inflow expected from various external sources. We believe that achieving 50 per cent of this target in 2024 and maintaining crude oil output at 1.5mbpd will be crucial in restoring FX stability in the near term”.
It added that the apex bank reportedly redeemed a portion of the matured currency forward liabilities amounting to almost $2 billion in the last 3 months of 2023.
This is in addition to a payment of $61.64 million to foreign airlines who were owed an estimated $700 at the end of November 2023.
“However, currency pressures remain heightened as FX shortages persist in the face of a largely constrained external reserves, limited crude oil-put, an FX backlog and past due FX forwards estimated at $6.5 billion. As a result, we expect less volatility than in 2023 and forecast a year-end exchange rate of a N1,100/$1”, the newsletter read.
According to the agency, a major risk to the forecast is the threat of rapid currency depreciation and the reversion to heavier management f the exchange rate by the CBN to maintain it.
Agusto&Co noted that it expect the CBN to raise MPR around 19 per cent given the need to manage inflation, mop up liquidity and raise interest rates to a level where long term savers earn positive return.
The apex bank is expected to hold its first MPc meeting on the 26 and 27th of this month.
