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The Nigerian naira could weaken to 850 per dollar by the end of the first half of 2024 due to balance-of-payment pressures and declining foreign-exchange reserves, South African lender Absa Group said in an investment note on Wednesday.
Nigeria’s gross external reserves improved marginally to $33.97 billion as at July 20, 2023, from $33.75 billion in June 2023, as accretion to external reserves remained weak while foreign exchange demand pressures persisted.
The naira closed trading at 791.42 against the dollar, on Tuesday July 25th, according to data from the FMDQ trading platform.
Africa’s largest economy may struggle to offset pent-up dollar demand with portfolio inflows, particularly into domestic bonds because of their low yields that are well below the current monetary policy rate of 18.75%, Absa analyst Nikolaus Geromont said in the report.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) increased the benchmark interest rate (MPR) to 18.75% from 18.5% on Tuesday, representing the highest interest rate in 22 years.
Nigeria’s fixed income yields are trending lower, despite elevated inflation, which is leading to a widening of negative real returns and financial repression.
“Domestic bonds would need to price in more risk premium to attract global investors,” Geromont said.