Country Economic Forecasts > Nigeria

With pressure on the foreign exchange market mounting, analysts were looking for signs of what the CBN intends to do about the NGN when the MPC convened in January. But the central bank remained fairly vague on the topic and kept all policy instruments unchanged. The CBN's efforts to spur growth, including excess liquidity in the financial system and lower interest rates, have failed to bring any result yet as commercial banks prefer the safety of investing in government debt rather than extending more credit to the private sector. This, together with tight forex liquidity conditions and falling oil prices, helps to explain why high-frequency indicators plunged back into contractionary territory in January. Mounting pressure on the foreign exchange market and the inability of monetary policy to revive growth may soon force the CBN to loosen its grip on the NGN. Our forecast assumes the NGN will be devalued in Q2 and again during the second half of the year. This will ease tight forex liquidity conditions and encourage more foreign investment, which together with an expansionary fiscal stance will help to lift GDP growth to 3.7% in 2016 from 3.2% last year, although the risks are increasingly on the downside.