But by far the biggest threat to the domestic economic outlook, were interest rates to trend up globally, would be the one to the naira’s exchange rate. Unusually low domestic money market rates have supported the naira carry trade – and the local investor community’s search for inflation-proof assets, even as the Central Bank of Nigeria has struggled to put the kybosh on this via a slew of administrative measures.
Two downward revisions to the official exchange rate late last year, and one early this year, only strengthen concerns about the central bank’s inability to hold course. As does the CBN’s latest “Naira 4 Dollar Scheme”. Over the two months to end-March, the balance on the nation’s gross external reserve was down by $1.48 billion, despite crude oil prices continuing their north-bound trend. Up to this point, supply constraints have driven oil price gains.
More than the global outlook, then, much of the domestic economic outcomes over the next nine months will ride on the federal government’s willingness and ability to drive deeper structural reforms. It is thus welcome that money market rates recently started trending up. It does not help that headline inflation has remained sticky upwards – shrinking consumer spending at the bottom of the earnings ladder, and heaping pressure on the exchange rate from the top.
Defend waiting ? Make CBN go sleep 🛌
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