In spite of the continued decline in the nation’s external reserves, firms’ expectation of naira appreciation over the next twelve months surged by 25.2 index points on the Business Expectation on the exchange rate. The Central Bank of Nigeria, CBN, disclosed this in its Business Expectation survey report for September released on Friday. The survey showed that Business Expectation Index on the exchange rate over the next twelve months stood at 46.9 index points. This represents 25.2 index points increase when compared to Business Expectation Index on the exchange rate for the current month which stood at 21.7 index points.
Firms project rise in inflation, borrowing rates in December — CBN survey(Opens in a new browser tab) The report stated: “Respondent firms expect the naira to appreciate in the current month, next month and next twelve months, as their confidence indices stood at 21.7, 36.0 and 46.9 index points, respectively.” The surge in firms’ expectation of naira appreciation over the next twelve months might not be unconnected to the recent decision of the United States Federal Reserve Bank (Fed) to cut its benchmark interest rate by 25 basis points (bpts). Last week the Federal Open Market Committee, FOMC, of the Fed cut policy rate by 25bps to 1.75 percent to 2.0 percent in its September 2019 meeting, the second rate cut since 2008.
This is expected to increase the attractiveness of the Nigeria’s fixed income market to foreign portfolio investors and hence increased dollar inflow and naira appreciation. Corroborating this, analysts at Lagos based Cowry Assets Management Limited said: “In the new week, we expect appreciation of the naira against the dollar across the market segments as seemingly renewed interest by foreign portfolio investors in local financial assets is expected amid rate cut in US.”
Meanwhile, the Business Expectation survey also indicated surge in Business Confidence Index for the overall economy as well as in the Business Confidence Index on economic growth rate. According to the CBN, Business Confidence on the overall economy for the next month surged to 59 index points from 26.7 index points for the current month. “At 26.7 index points, respondents expressed optimism on the overall confidence index, CI, on the macro economy in the month of September 2019. The business outlook for September 2019 showed greater confidence on the macro economy with 59.0 index points. “Respondents anticipate better economic conditions, as their index of economic growth rate in the short run stood at 35.1, 47.2 and 55.8 points for the current month, next six months and next twelve months, respectively,” the report stated. Vanguard