» »

Fear Over MPC Outcome Fuels Naira Appreciation

By Babajide Komolafe
The naira maintained its
upward trend in the parallel
market yesterday, appreciating
to N345 per dollar in response
to decline in demand for
dollars occasioned by anxiety
over the possible outcome of
the Monetary Policy
Committee (MPC) meeting
coming up next week.

Vanguard investigation
revealed that the parallel
market exchange rate fell to
N345 per dollar yesterday
from N350 per dollar on
Monday, implying appreciation
of N5 for the nation’s
The naira has appreciated by
N25 against the dollar since
Friday when the parallel
market exchange rate stood at
N370 per dollar in response to
anticipated increase in
demand due to deregulation of
petroleum products
importation and rumours
about imminent official
devaluation of the naira by the
Central Bank of Nigeria (CBN).
Bureaux De Change operators
attributed the increased
appreciation of the naira to
anxiety over the possible
outcome of the MPC meeting
scheduled to hold from
Monday to Tuesday next week.
“Demand for dollars is weak
today because market
participants, especially, buyers
are anxious about the
outcome of the MPC meeting”,
said Aminu Gwadabe,
President Association of
Bureaux De Change Operators
of Nigeria (ABCON).
Confirming this development,
Financial Derivatives Company
Limited, said “Nigerians are
extremely nervous about the
possible outcomes of the next
MPC meeting. This is because
of a confluence of negative
developments ranging from a
sharp fall in the production of
oil, deepening external
reserves, spiralling inflation
and sharply lower Gross
Domestic Product (GDP)
growth. There has hardly been
a time in the history of Nigeria
that the Central Bank has
been faced with such stark
and hard choices.
Unfortunately, there is no
silver bullet.
Reviewing the impact of the
sharp increase in inflation rate
to 13.6 percent in April on the
financial markets and the
outcome of the MPC meeting,
“The Company stated, “The
MPC is expected to seriously
consider the consequence of
high inflation on investor
returns. A tighter monetary
environment (hiking interest
rates) could result in investors
shifting to the fixed income
market due to attractive
interest rates. In addition,
NIBOR and T-bill rates would
be expected to increase.
“Given the underperformance
of the stock market with a
negative YTD return of
(6.35%), we expect capital
outflow from the Nigerian
bourse, as investors become
attracted to high interest fixed
income instruments.
“We expect a cocktail of
measures or a sequence of
steps aimed at controlling
inflation, maintaining currency
stability and stimulating
growth. The order in which
these decisions will be taken is
a subject of great uncertainty
and anticipation.”


Related Article

Posted By cheatmaster On 06:55 Wed, 18 May 2016

Comments:1 || Views:



Please LOGIN or REGISTER To Gain Full Access To This Article