Saving in dollars implies a bleak economic outlook, says Coronation

Analysts at Lagos-based Coronation Research have said that selling the naira to buy the dollar equals paying more than its fair value, and signifies a bleak economic outlook.

The naira’s current value against the dollar is abnormal and unprecedented given the range it has traded in the last 13 years, their analysis shows.

According to the Coronation weekly update, selling the naira to buy the dollars just to save implies the belief that the naira will not appreciate and will continue to be very cheap in fair value terms.

“One might buy the dollars because it is necessary, but doing this only as a saver implies several assumptions; inflation will remain a threat (because of the contribution of imported inflation); foreign-sourced goods and services will continue to be very difficult to afford; companies’ costs are likely to rise due to imported inflation; companies’ profitability is likely to decline,” the report said.

The report recommended that savers who intend to save in naira take advantage of the yields on treasury bills and OMO bills, which have performed better this year than in the last four years, although the yields are low compared to the inflation rate.

“The good news is that in terms of Naira fixed income, 2024 is a much better year than any of the past four in terms of what can be earned on T-bills and OMO bills. The bad news is that, while a 1-year T-bill yield at 25.07percent is double anything achievable last year, it still falls short of the inflation rate at 33.69percent, so the inflation-adjusted return remains negative,” it stated.

However, the report stated that saving in Naira is a rosy economic outlook, owing to the belief that the Naira inflation will be beaten.

“By contrast, the positive decision to save in Naira implies several things: the raising of market interest rates by the CBN will be effective; declining inflation will make the fair value of the Naira look even cheaper than at present,” it said.