The Nigerian Naira is expected to trade closer to N400 per one dollar as election campaigns for the 2019 elections enter into full swing.
Already some presidential candidates are gesturing, and financial analysts says that could result in a negative trend in 2018.
Electioneering is expected to push up government spending in 2018 and the risk of the budget deficit being monetised will increase, which would be negative for the naira, according to the Lagos arm of Russian Investment Bank, Renaissance Capital.
The foreign exchange market analysts, however indicated the naira was currently undervalued.
“On 2 August, banks began to publish indicative prices based on trades at the NAFEX window, at the behest of the authorities. This led to the adjustment of the interbank FX rate to $1/N366, from $1/ N315 previously, and its convergence with the only market determined rate (outside the parallel market), the NAFEX rate.
“At today’s interbank rate of c. $1/N360, the naira is cheap; it is 14 per cent undervalued, according to this analyst’s 13-year real effective exchange rate model.
“We think a stronger external sector and tighter monetary policy imply naira appreciation risk in the near term, and as such, we revise our YE17 FX rate forecast to $1/N332 as against $1/N447 previously,” they posited.
They said the Naira would decline in 2018 based on macro economic realities.
“Looser monetary policy in 2018 implies a weaker Naira,” the analysts stated, adding that Godwin Emefiele, the central bank governor, had expressed a desire for policy easing in a mid-2017 monetary policy committee (MPC) statement, but thinks appropriate liquidity conditions should precede it.
They, therefore, forecast an FX rate of $1/N373 at year end 2018 (YE18).
“Our FX model predicts a rate of $1/N373 at YE18; assuming monetary policy becomes accommodative and little upside for the external sector. We think it is probable that instead of appreciating in the near term, the naira weakens gradually to $1/N373 at YE18, which would signal price stability.”