It has been observed that should the current themes negatively impacting the Naira remain present, prices may hit N1000 in a matter of time.
Lukman Otunuga, Senior Market Analyst at FXTM, disclosed this in a note titled, ‘Week Ahead: Nigeria Inflation, Fed Minutes and Oil In Focus’ which he sent to Daily Independent at the weekend.
He said, “Such a development will most likely increase the cost of living and squeeze households further in the short to medium term.”
In the currency space, the Naira took another beating on the black market exchange last Friday as it slumped to N932 as dollar shortages worsened two months after the CBN adopted a flexible exchange rate regime.
Otunuga also observed that inflationary pressures are gradually easing across the globe but remain rampant in Africa’s largest economy.
He said, “Unlike the United States which has witnessed consumer prices coming down from a peak of 9.1 percent in June 2022, Nigeria’s inflation remains hot, stubborn, and unyielding.
“The current annual inflation rate for Africa’s largest economy stands at a whopping 22.8 percent – its highest since September 2005.
“With the inflation beast drawing strength from rising food prices, transportation, and import costs, it is forecast to tick even higher for July.
“Ultimately, persistent signs of rising inflation may force the Central Bank of Nigeria to act once again at its next policy meeting in September.
“While higher rates have the potential to cap and control inflation, it could come at the cost of economic growth which expanded by 2.31 per cent during the first quarter of 2023.”
Outside Nigeria, it was observed how higher interest rates have somewhat capped and controlled inflation albeit at a price. For Africa’s largest economy, many are worried when inflation will eventually reach its peak.
Elsewhere, Dollar weakness could become a major theme in the second half of 2023 as the Fed concludes its hiking cycle.
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With inflationary pressures easing in the United States and the Federal Reserve shifting to data dependence for future monetary policy decisions, the odds of another hike are falling significantly.
According to Fed fund futures, traders are only pricing in only a 10 percent chance of a rate hike in September and 32 percent probably by November 2023.
“Should expectations become reality, the Dollar is likely to weaken against not only G10 majors but emerging market currencies over the next few months. The pending Fed meeting minutes are likely to accelerate the potential dollar selloff if they strike a dovish tone”, Otunuga added.
He added that oil prices have the potential to push higher amid growing optimism over the global demand outlook.
