CBN Adopts NAFEX as Official Rate
Making Omelette Without Breaking Eggs
Economists and investors sighed with relief when the CBN finally adopted the NAFEX (N410.93/$) rate as the Nigerian official exchange rate. But the markets took advantage of consumer vulnerability, pushing the naira over the N500/$ mark in the parallel market.
This was because of three distinct factors a. Panic buying b. Speculative trading and c. Front loading of future demand. Our economic analysis based on the cobweb theorem of prices (exchange rate) moving towards an equilibrium says that prices will rise initially when there is a demand gap before falling in the short run.
Therefore, we expect the forex market to correct itself in July with the naira appreciating towards N470-N490/$. The current PPP value appreciated from N507/$ to N490/$ in the last two weeks. Whilst the autonomous market rate fell from N485/$ to N502/$. Once the CBN increases supply in the market by 20%-25% the naira will appreciate in the autonomous market towards its fair value.
Rising Oil Prices – A Bittersweet Experience
Nigerians had mixed feelings when the price of Brent crude crossed $70pb – a 24 month high. The first being that the federal government revenue will increase and the naira will appreciate whilst the second was that we will have to pay N200/litre or more for petrol.
The questions in people’s minds were what is the government is going to do with the improved revenue? Is it going to have an impact on me or is it going to be in the words of Fela – Suffering and smiling?
In this edition of the LBS Breakfast Session, Bismarck Rewane and the FDC Think Tank discuss relevant policy directions and their implications on your business operations.
Download – The LBS Executive Breakfast Session – June 2021
