• Naira holds steady against dollar at black market
Goldman Sachs, an American multinational investment bank and financial services company, has called on Central Bank of Nigeria (CBN) to consider adopting higher interest rates to hedge against free fall of naira.
The caution came on the heels of the collapse of different foreign exchange rate (FX) windows to the Investors’ and Exporters’ (I & E) window, a painful decision the apex bank was compelled to take to restore sanity and clean up the market.
The Guardian reported that local currency faces a risk of steeper depreciation, except supply level is increased significantly to clear backlog demand, which, according to Goldman Sachs, is estimated at $12 billion.
Aviation alone has $818.2 million trapped funds in the form of foreign operators’ ticket sales awaiting repatriation. The stock market, telecommunication and other sectors have also carried along billions of unmet FX demands, while those of the manufacturing sector were estimated at $2 billion about two years ago.
Goldman’s advisory, which came before the CBN issued a statement confirming rates convergence, a policy thrust mooted by President Bola Tinubu during his inauguration, said the devaluation was a necessary, but not sufficient condition for achieving rates convergence.
“In addition to the devaluation, the CBN issued a communique specifying that it has collapsed all of its (multiple) official FX rates into the I&E window but did not provide any clarity on current/capital account FX restrictions that result in a parallel market exchange rate that is weaker than that offered at the official window,” it noted.
But the clarity the investment bank was concerned about came Wednesday night, with the monetary authority liberalising the market, marking the beginning of a willing-buyer-and-willing-seller era.
The bank noted: “We think that easing FX restrictions and clearing the FX backlog (that we estimate at $12 billion) would be required to achieve a unified naira exchange rate.
Goldman Sachs’s suggestion is premised on the assumption that a higher interest rate would raise the real rate of return and stimulate the inflow of foreign capital flow into the domestic economy.
With headline inflation currently reading 22.4 per cent, while the bond is about 14 per cent, most investors are on a negative real rate of return (inflation-adjusted return). Coupled with high political risk and global monetary tightening, the market is disadvantaged.
Meanwhile, naira continues to hold strong against the dollar and other currencies, despite Wednesday’s panic over sharp depreciation.
As at press time, the currency was still trading around N755/$ at the Lagos market.
