Indeed, Naira devaluation is probably the most potent weapon against the prosperity of Nigerians. Nigeria’s migration from a potential industrial power house with bustling social affluence, to a subdued and stumbling economy clearly began with the adoption of IMF’s Structural Adjustment Programme during Babangida’s regime: the chorus from International Agencies, at that time, was also that falling oil prices with an unserviced debt burden and the consequent restriction of trade credit to Nigeria, were the products of an allegedly overvalued Naira exchange rate.
By Lukman Otunuga
The Naira entered a slippery decline against the Dollar during trading last week with prices hitting the 360 level on the parallel markets following the persistent supply shortages of the Dollar in the interbank market. This depreciation was complimented with the incessant declines in oil prices and declining production from the renewed militancy which has weighed heavily on the Nigerian economy.
CBN & Exchange rate: Naira & Dollar
Although expectations were high over the Naira de-peg acting as a catalyst to attract foreign investors, the ongoing global uncertainties and heightened fears towards the Brexit developments has heavily eroded investor risk appetite.
Speaking of the Brexit, the Bank of England’s unexpected decision to leave UK rates unchanged amid the mounting Brexit fears shocked the global markets. The persistent Brexit fears have weighed heavily on the UK economy while fears mount of a potential Brexit fueled recession.
It seems likely that the Bank of England takes action in the future and this should cap any upside gains seen in the Sterling. Sentiment is bearish towards the pound and further downside could be expected as the ongoing post-Brexit uncertainty haunts investor attraction towards the currency.
Oil prices have depreciated more than 3% this trading week with WTI crude cutting below $46 after the recent crude oil inventories reported a shocking smaller than expected crude oil inventory draw in early July. When this is combined with the fact that Saudi Arabia’s oil production has increased to almost 10.6 million barrels in June, oil prices could be poised for a steep decline in the medium term.
It should be kept in mind that the ongoing oversupply woes still linger while concerns that demand is waning has effectively capped any upside gains. The dangerous combination of oversupply and waning demand could create a foundation for oil prices to trade back towards $40.
Disclaimer
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