The naira may not
necessarily come under uncontrollable pressure due to the delayed
elections, according to some finance experts.
Victor Ndukauba,
investment research analyst on banking and infrastructure, Afrinvest, a
finance research and analysis firm, said though there has been an
accumulating pressure on the naira, “the delay in elections would not
translate to an uncontrollable pressure on the naira.”
Afrinvest had
earlier stated in its outlook that it expects strong pressure on the
naira to persist in the coming weeks, as speculative demand for the
dollar becomes heightened by current political uncertainties
surrounding the forthcoming elections.
Gali Suleiman
Kabiru, a bureau de change operator in Lagos, said the naira has
strengthened to N157 to a dollar today from N159 last week, at the
black market. He said he cannot explain the factors behind this
appreciation, especially during this election period.
“We cannot say that
this is why this is happening. The commercial banks, to a large extent,
determine the movement of the naira, and we know that it is also an
effect on demand and supply at the forex market,” Mr. Kabiru said.
He also said it is
a possibility that most of the politicians that used to speculate on
the naira and play some other funny tricks on it are busy with the
elections and have less time for speculations. “So, we think that the
naira would even strengthen during this period,” he said.
The Independent
National Electoral Commission (INEC) on Sunday postponed by a week the
parliamentary elections initially scheduled for last Saturday.
“Interestingly,
markets have not significantly reacted to this development. On the
Forex side, the inter-bank rate actually appreciated to 154.0 on
Monday, driven by increased dollar supply from oil companies, even as
demand remained high at the WDAS auction (USD525.8m),” Samir Gadio,
emerging market strategist, Standard Bank, said.
According to Mr.
Gadio, the naira actually appreciated to some extent in recent days to
about 153.9 as at 6 April because of Forex sales by oil companies, but
the exchange rate still remains relatively under pressure, ahead of the
forthcoming electoral cycle.
“On the upside, we
have not seen a depreciation following the postponement of the 2 April
2011 parliamentary elections, but there is still a possibility that the
naira could weaken over the next two weeks on the back of speculative
pressures, rather than structural factors.
“That said, we
expect the currency to ultimately appreciate as political risk eases in
late April, but also because of the tighter monetary policy stance,
which means going long naira at this stage remains an attractive
opportunity,” he added.
Telling on the naira
Renaissance Capital, an investment bank, however, says the naira’s performance will reflect protracted uncertainty.
“Elections,
particularly in Sub-Sahara Africa, are typically accompanied by
increased levels of uncertainty. The prolongation of the electoral
period only adds to the levels of anxiety amongst all stakeholders
including the electorate, business and investors, who all want to see
the completion of successful elections,” the bank said.
The firm says the
naira, which has already been weighed down in recent weeks by
electioneering, weakened further earlier in the week to N155.2 per
dollar, as nervousness prompted some to sell-off their local currency.
“The naira is
expected to continue to come under pressure during April. Once the
elections are behind us, fundamentals are expected to play a stronger
role in determining the value of the naira. Postponed poll delays the
return to ‘business as usual’. This postponement of the polls not only
protracts the period of uncertainty, but also delays the
decision-making process, both in the private and the public sector,” it
further said.
Industry watchers
say it is better to run a delayed-but-credible poll rather than rush
and compromise the integrity of the electoral process, with the results
being almost immediately challenged in court even though new government
administrations usually take a while to settle into their respective
offices before the business of government resumes, the implication
being a delay in the economic activity.
“We expect the
one-week delay to have a modest effect, given the short time period, on
the resumption of economic activity,” Renaissance Capital said.
The Central Bank in
its last Monetary Policy Committee held in March reiterated that it was
keen to preserve exchange rate stability around the 150 naira to dollar
level, as any substantial currency depreciation would have a negative
impact on other macroeconomic control variables such as inflation.
