The Nigerian naira crashed to a record low on Monday as investors waited for the upcoming interest rate decision by the Bank of Nigeria and presidential inauguration. The USD/NGN price soared to a high of 462.93, which was about 3.9% above the lowest point in January. It has soared to 750 in the black market.
Nigeria’s central bank decision
The USD to NGN exchange rate has been in a strong bullish trend in the past few months. It has soared by over 28% in the past five years. Notably, other African currencies like the Kenyan shilling, Rwanda franc, and South African rand have also plunged to a record low.
There will be four important catalysts for the USD/NGN in the next few days. First, the Federal Reserve will publish the latest minutes on Friday. These minutes will provide more information about the past meeting and what officials deliberated.
Most analysts expect that the Fed will point to a rate pause in June as officials observe the impact of the recent rate hikes. This view was confirmed by Neel Kashkari, the head of Minneapolis Fed who said that he supported moving slowly from here.
The other important catalysts from the US will be the debt limit issue and economic numbers like new home sales, GDP, pending home sales, and the Personal Consumption Expenditures (PCE) index.
Meanwhile, the Nigerian naira will react to the latest interest rate decision by the Bank of Nigeria. With Nigeria’s inflation rising, there is a likelihood that the bank will hike interest rates by another 0.25% to 18.25%. The bank has boosted rates from 11.50% in March 2022 to the current 18.25%. The official inflation rate in Nigeria stands at 22%.
Nigerian naira outlook
The Nigeria naira will also react to next week’s presidential inauguration that will see Bola Tinubu become the next president. Tinubu has promised to change the country’s economy by boosting oil refinery, diversifying it from oil, and ending subsidies.
As I wrote in my last article, the Nigerian naira will react to the official opening of Dangote’s oil refinery which is expected to change the country’s economy. Now, Nigeria will be able to refine its own oil and even export some refined products. In theory, this is a positive thing for the economy since Nigeria is known for exporting crude oil and importing petroleum products. The refinery will be able to process over 650k barrels per day.
However, in the short term, the outlook of the Nigerian naira is bearish, because of the strong dollar and uncertainties about the incoming administration. In a note, analysts at Absa said that the official USD/NGN could soar to 530. The statement said:
“This discrepancy between the official and parallel markets is among the widest since the managed floating rate was introduced in 2016. With Tinubu calling for more flexibility in the exchange rate regime, we expect the naira to be upwardly adjusted to 530/USD after the presidential inauguration.”
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