By Lukman Otunuga
This will be a big week for Africa’s largest economy as its reveals updates on monetary policy. The Central Bank of Nigeria (CBN) is widely expected to leave interest rates unchanged at 11.5% in March despite inflation currently well above the 6-9% target. Central banks across the globe have waged war against rising prices by adopting an aggressive approach towards tighter monetary policy. Examples range from the Federal Reserve, Bank of England, and Bank of Canada among many others. However, the CBN has made it clear that there needs to be a solid recovery in economic growth before it pulls the trigger on higher interest rates.
It is worth keeping in mind that Nigeria remains exposed to external risks in the form of oil price volatility, geopolitical tensions, rising Covid-19 cases in China, and global growth fears. This could force the CBN to maintain the status quo on interest rates in the second quarter of 2022, even as other central banks take action. In regards to the Naira, it weakened to a record low of 585 per dollar on the black-market last Friday as dollar demand jumped. With the local currency on a slippery decline and likely to weaken further amid dollar shortages, 600 per dollar could be the next key level of interest.
Outside of Nigeria, oil prices appreciated on Monday after Russia-Ukraine talks appeared to be at a standstill. The past few weeks have certainly been volatile for oil which soared to record highs in March before crashing more than 20% last week to sink below $100. Despite the massive selloff, the fundamentals still remain in favour of oil bulls with geopolitical risks and supply concerns limiting downside losses. As identified in our previous reports, Nigeria exports crude but imports all by-products of the resources. So even though rising energy prices may be good news for energy producers, this is stifled by Nigeria’s poor infrastructure, sub-optimal oil production, and fuel subsidies.
On the global front, there will many key economic reports from major economies and speeches from central bank officials. We could be some market action on Thursday as US President Biden attends the NATO summit. In regards to currencies, the dollar remains on standby ahead of another busy week while gold is trading around $1926.
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Otunuga is a Senior Research Analyst at FXTMS