Why the Naira depreciated in Q4 2018

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Naira depreciates due to the decline in external reserves and sustained capital reversals among others in the fourth quarter of 2018 

By Anayo Ezugwu

IN the fourth quarter of 2018, Naira, the Nigerian currency depreciated by 0.2 percent. The Central Bank of Nigeria, CBN, attributed the depreciation to declining external reserves and sustained capital reversals in response to higher yields in advanced countries and partly to reduced output growth.

The CBN in its fourth quarter 2018 economic report, said in the foreign exchange market, 12 out of the 16 currencies surveyed depreciated against the United States, US, dollar in the fourth quarter of 2018. The depreciation reflected continued sluggish recovery of global output, decline in commodity prices and investor appetite for dollar-denominated assets.

“Developments in the international stock markets were generally mixed in the fourth quarter of 2018. In North America, the United States S&P 500, Canada S&P/TSX Composite and Mexico bolsa (IPC) decreased by 8.2 percent, 5.8 percent and 0.9 percent, respectively. In South America, the Argentine Marvel and Brazilian Bovespa and the Colombian COLCAP indices decreased by 9.8 percent, 2.7 percent and 5.8 percent, respectively.

“In Europe, the UK FTSE 100, the France CAC 40, and German DAX indices decreased by 0.8 percent, 2.5 percent, and 1.3 percent, respectively. Similarly, in Asia, Japan’s Nikkei 225, and China’s Shanghai indices decreased by 6.9 percent and 3.4 percent, respectively, while the India’s BSE Sensex increased by 0.2 percent.

“In Africa, the South African JSE African AS and the Egypt EGX CSE 30 increased by 0.8 percent and 6.7 percent, while the Nigerian ASI, Kenya Nairobi NSE 20, and the Ghanaian GSE All share decreased by 0.3 percent, 2.3 percent and 2.7 percent respectively, in the review period,” he said.

According to CBN report, global crude oil supply in the review quarter was estimated at 99.99 million barrels per day, representing 0.6 percent increase above the level in the preceding quarter. It stated that world crude oil demand was estimated at an average of 99.98 mbd, indicating a 0.7 percent increase above the level in the third quarter of 2018.

“The average price of OPEC Reference Basket (ORB) of 15 selected crude streams was US$67.98/b in the fourth quarter of 2018, and represented 8.3 percent decrease below the level in the preceding quarter. The decrease in oil price was attributed to slowing global economic momentum amid US-China trade tensions and the prospect of lower growth in global oil demand.”

The report stated, “Global growth was estimated at 3.7 percent for 2018, same as was for 2017. This was due to a weaker outlook for some key emerging market and developing economies, arising from country-specific factors, tighter financial conditions, geopolitical tensions, and higher oil import bills. Growth In advanced economies, was estimated at 2.4 per cent in 2018 compared with 2.3 per cent in 2017.

“The United States economy was projected to peak at 2.9 percent compared with 2.2 per cent in 2017. This was supported by the procyclical Fiscal Stimulus after eight consecutive years of expansion and still-loose financial conditions (despite expected monetary tightening). In the Euro area, growth gradually slowed further to 2.0 per cent compared with 2.4 per cent in 2017.

“In the emerging market and developing economies, growth was estimated to remain steady at 4.7 percent in 2018 when compared with the figure in 2017. The growth prospects of many energy exporting economies were boosted by higher oil prices, but growth was revised downward for Argentina, Brazil, Iran, and Turkey, among others, reflecting country-specific factors, tighter financial conditions, geopolitical tensions, and higher oil import bills.

“Growth in China was estimated at 6.6 percent in 2018, reflecting slowing external demand growth and necessary financial regulatory tightening. In sub-Sahara Africa, Growth was on the mend, with the region’s average growth projected to rise to 3.1 percent in 2018 from 2.7 per cent in 2017. The increase was attributed to stronger global growth, higher commodity prices, and improved capital market access, following efforts to improve fiscal balances in the aftermath of the commodity price slump.

“Growth performance varied, however, across countries in Africa on the backdrop of improved prospects for the largest economy, Nigeria. Nigeria’s growth was projected to increase from 0.8 percent in 2017 to 1.9 percent in 2018.”

– Feb. 8, 2019 @ 12:55 GMT |

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