© Samir Gadio
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But the Ghanaian cedi has actually depreciated continuously over time because of large current account and fiscal deficits and poor confidence in the FX outlook. Given FX shortages, it is difficult for foreign investors to exit the market anyway, so the GHS was not really affected by the EM sell-off.
The Nigerian naira has depreciated against the USD (USD/NGN at 162.4 on 30 Jan), albeit less aggressively than the currencies of most mainstream emerging markets (losing 1.8% in Jan vs 7.8%, 7.3%, 6.7% and 2.1% for the South African ZAR, Russian RUB, Turkish TRY and Brazilian BRL). This relative resilience of the NGN has been noticeable at times of pronounced stress in global markets in previous years, which reflects the policy-determined nature of the exchange rate in Nigeria.
We do not see the Central Bank of Nigeria changing the FX stance and departing from its price stability mandate which points to further direct USD sales to banks in the short term. At this stage, a relatively stable exchange rate and single-digit inflation path will be perceived as CBN Governor Lamido Sanusi's most critical achievements on the macroeconomic front, and if anything, this makes us even more confident that the currency regime will be preserved by the central bank in coming months.
The oil price has remained robust in recent years (USD109.0 pbl on 29 Jan), mitigating a relative drop in production in 2013. We still see limited downside risks in 2014 as global growth and demand recover and offset concerns about the trajectory of US shale gas output. This implies that despite the absence of oil savings and a loose federally consolidated fiscal stance, Nigeria and the NGN should still muddle through. Besides, major portfolio outflows are less likely to materialise as long as there is no decline in the oil price below the USD100-95 pbl level.
Still, the risks to policy rates have probably shifted to the upside as Nigeria needs to preserve the competitiveness of its fixed income assets vs other emerging countries that also experienced a larger FX depreciation and would theoretically offer more value should risk sentiment improve.
However, we like the Kenyan Shilling and Ugandan Shilling because there is little foreign money in these markets (some on the equity side in Kenya) and real rates are high and inflation contained. These markets can be seen as diversifiers as they are uncorrelated with the global rate/FX cycle and their currencies should remain stable.