A month ago we warned of the looming hyperinflation coming to Nigeria (as well as much of Africa). It appears, following the central banks' rate hike to a record 14% (reach for yield anyone) in an attempt to stall the ongoing currency collapse, that Emefiele is worried, warning of "concern over headline inflation spike." Perhaps most worrying though, amid the chaos, Emefiele advised depositors in banks "to go about your business," adding that there was "no need to panic or worry." Hhhmm..
The rate hike is not working, Spot Naira is tumbling on the day to record lows, and forward rates are signaling much more to come... but don't let that stop Emefiele from jawboning... *NIGERIA'S EMEFIELE:`SO FAR, SO GOOD' ON NEW FX REGIME
Emefiele had plenty to say...
- *NIGERIA'S EMEFIELE: CONCERNED OVER HEADLINE INFLATION SPIKE
- *NIGERIA'S EMEFIELE: INFLATION SPIKE IS STRUCTURAL
- *NIGERIA'S EMEFIELE: FOREIGN INVESTORS REMAINED LUKEWARM
And this little gem:
- *NIGERIA'S EMEFIELE: MORE LIQUIDITY WILL CURB INFLATION (wait what?)
But he saved the best for last...
- *NIGERIA'S EMEFIELE: BANKING SYSTEM REMAINS STRONG
- *NIGERIA'S EMEFIELE: NO PANIC OR WORRY IN BANKING SECTOR
- *NIGERIA'S EMEFIELE: NO NEED TO PANIC THAT A BANK IS IN DISTRESS
- *NIGERIA'S EMEFIELE: DEPOSITORS IN BANKS GO ABOUT YOUR BUSINESS
May we suggest ever so subtley that now is the time to panic.
As we noted previously, for Nigeria's 175 million-strong population, it appears that Nigeria is about become the next Venezuela, with imminent hyperinflation on deck, as prices soar to keep up with the collapse in the spot rate.
Of course, what is bad news for the population is great news for capital markets as the "devaluation as a bullish case for stocks" arguments spew forth. Stocks always surge as a country is about to tumble into the hyperinflationary abyss. The question is whether the nominal price increase will keep up with the all too real collapse in the Naira's purchasing power which is about to slam Nigeria. If Venezuela is any indication, the answer is no.
Finally, for those wondering how to trade here, the answer may once again revolve around the Niger Delta Advisors: if Nigeria is unable to export more oil due to supply disruptions and thus inject much needed dollars into its Treasury, the country's financial situation wil get even more dire, leading to an acceleration in the naira's devaluation. On the other hand should Nigeria's government be successful in taming its offshore funded militants, the naira may be a buy, however that trade would be offset by a short in oil as the world's most acute crude supply disruption comes to an end.
In any case, watch out for unsolicited Nigerian emails from financially erudite locals asking you to buy stocks, bonds, or any other asset class. Those will result in guaranteed losses.