Naira Stability, Rand Weakness

The Nigerian naira has continued to experience significant volatility on the interbank market since the 275bps hike in early October; however, on balance the currency is slowly strengthening. Technical support of just below NGN159.00/US$ has held, and the currency was trading at NGN158.75/US$ at the time of writing. We believe that the naira will continue to firm, settling around NGN156/US$ on the interbank market in the near term. Supportive of this view is the fact that foreign reserves are on the rise, reaching US$33.1bn on November 14, compared to lows of US$30.9bn on October 7. Furthermore, with inflation ticking up to 10.5% in October (compared to September's print of 10.3%), we expect a further hike in the benchmark policy rate at the upcoming central bank policy meeting, which will be supportive of the currency.

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