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Home Currencies

Dollar Demand Pressure may Force CBN to Review Interest Rate

Rate Captain by Rate Captain
January 11, 2022
in Currencies, Economics
Reading Time: 2 mins read
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A report from Sigma Pension has revealed that a potent demand for the dollar in the Nigerian economy will induce the Central Bank of Nigeria to condense monetary policy to control foreign exchange fluctuation in the forex market.

In a report titled “Nigeria 2022 outlook: Consolidating on recovery, but persisting large imbalances present headwinds.”

The report contrasted insufficiency in liquid financial system to the enormous fiscal borrowing requirements in 2022, it also described interest rate estimates and financial market expectation.

Texts from the report, “We expect the oil sector to exit recession in 2022 as Nigeria’s crude production rebounds from the 1.6mbpd low base in 2021 towards a range of 1.8-1.85mbpd and as most OPEC+ curbs are removed by May 2022.

“Given our price and production expectations, we expect Nigeria’s external balance to improve as oil export receipts normalise to trend levels amid persisting import demand suppression on account of the CBN’s currency policy.

“We expect Nigeria’s economic growth to stabilise around 3.4 per cent in 2022, reflecting improvements across telecoms, trade, manufacturing, and oil.”

The report also particularized the lofty political risk premiums for 2023 general election as well as fiscal borrowing plan.

The report stated, “Furthermore, likely stronger dollar demand will convince the CBN of the need to tighten monetary conditions as with the trend across global central banks to manage FX reserve depletion. Against this backdrop, we think the current bearish trends in the fixed income market will likely persist over 2022.

“For equity markets, we see bearish trends dominating market sentiments as the fixed income optionality becomes available to investors after a two-year hiatus and as political risk premiums on Naira risk assets heighten ahead of the 2023 general elections.”

Sigma pensions anticipate investments support from domestic institutions in bellwether names to continue to curtail downside to the overall market.

 “Despite the emergence of new variants of the COVID-19 virus, we view higher vaccine coverage and the existence of drugs as supportive of further normalisation in global economic activity in 2022.

“Rising inflation expectations from a mix of supply bottlenecks and stimulus fueled demand is likely to drive a withdrawal of global monetary stimulus and incite interest rate hikes, which will underpin higher US dollar interest rates.”

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