Economy & Politics
Naira to depreciate slightly over $1.52 billion forward contracts
Currency traders are expecting the naira to fall slightly today, due to the maturing $1.52 billion April 29 contract.
Currency traders are expecting the naira to fall slightly today, due to a maturing $1.52 billion April 29 forward contract.
Bosun Obembe, an FX and Derivatives Trader at Access Bank, told CNBC Africa yesterday why the weakening of the naira was expected.
He explained how the naira depreciated at about 20kobo at the investors’ and Exporters window yesterday to close at N386.45 from the previous day’s closing of N386.25. He said :
“Customers with Non-Deliverable Futures will need to buy dollars to claims settlement credit, given that all the contracts settled in the money.
“The additional demand from the contract will exacerbate the already thin inflow in the Investors & Exporters market; as such, the naira will weaken though it’s likely to remain below N390 to $1. Most currency traders are trading within the band N380-390 to the dollar.”
READ MORE: IMF reveals CBN is ‘taking steps’ to float the Naira
Note that the forward market is an OTC (Over the Counter) market platform that sets the price of a financial instrument or asset for future delivery designed in contracts. Forward markets are used for trading a range of financial instruments, especially in the currency market.
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The naira has been under pressure in recent days, as Brent crude price plunged more than 8% WoW to $24.23 barrels per day as at 8.59 am local time, while Nigeria’s foreign exchange reserves further dropped by 0.1% to $33.6 billion.
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IMF lifts 2021 global GDP growth to 6%
The group also warned that economic recoveries are diverging dangerously across and within countries.
The International Monetary Fund has lifted its global growth outlook to 6% in 2021 (0.5% point upgrade) and 4.4% in 2022 (0.2 percentage point upgrade), after an estimated historic contraction of -3.3% in 2020 due to the effects of the COVID-19 pandemic. This disclosure was made on the organisation’s website on Tuesday.
The group also warned that economic recoveries are diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliance on tourism do less well.
READ: Corruption erodes the constituency for aid programmes and humanitarian relief – IMF
What the IMF is saying
“The upgrades in global growth for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly to a sizeable upgrade for the United States (1.3 percentage points) that is expected to grow at 6.4 percent this year.
This makes the United States the only large economy projected to surpass the level of GDP it was forecast to have in 2022 in the absence of this pandemic.
China is projected to grow this year at 8.4 percent. While China’s economy had already returned to pre-pandemic GDP in 2020, many other countries are not expected to do so until 2023.”
READ: Nigeria needs structural and monetary policy reforms to unlock potential – IMF
On divergent recoveries
The IMF stated that divergent recovery paths are likely to create wider gaps in living standards across countries compared to pre-pandemic expectations.
“The average annual loss in per capita GDP over 2020–24, relative to pre-pandemic forecasts, is projected to be 5.7 percent in low-income countries and 4.7 percent in emerging markets, while in advanced economies the losses are expected to be smaller at 2.3 percent,” they said.
“Faster progress with vaccinations can uplift the forecast, while a more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade. Multispeed recoveries could pose financial risks if interest rates in the United States rise further in unexpected ways.“
For Africa, IMF forecasts economic growth of 3.4% in 2021 and 4% by 2022, Nigeria is expected to grow by 2.5% in 2021 and 2.3% by 2022, while South Africa is projected to hit growths of 3.1% and 2.0% for the respective years in focus.
READ: The 4th industrial revolution and the birth of a new international monetary system
In case you missed it
The International Monetary Fund (IMF) identified some factors that hamper the economic recovery of low-income countries from the devastating impact of the coronavirus pandemic, factors including access to vaccines, limited policy space to respond to the crisis, the lack of means for extra spending, pre-existing vulnerabilities such as high levels of public debt in many low-income countries and sometimes weak, negative, total factor productivity performance in some low-income countries. These factors continue to act as a drag on growth.
