As the value of the Chinese currency slides at the international currency market, analysts said Nigeria could see cheaper imports from the Asian giant on the back of the currency swap deal made recently.
The Chinese yuan tumbled to its lowest level in six months after the People’s Bank of China (PBoC) reduced the reserve ratio requirement for commercial banks by 0.5 per cent. This move according to Lukman Otunuga, an analyst with global forex broker, FXTM, may fuel concerns over China’s economic outlook at a time global trade concerns continue to weigh heavily on sentiment.
Nigeria and China sealed a currency- swap deal worth $2.4 billion last month that is expected to provide local liquidity between Nigerian businessmen and their Chinese counterparts.
Otunuga noted that a high degree of optimism remains over the Nigeria/China currency swap deal. He however said while a depreciating Yuan could be a welcome development for Nigeria as Chinese exports become cheaper, “the impact could be counteracted by the effects of a trade war.
“It must be kept in mind that China and the United States remain Nigeria’s biggest trading partners, and a trade war between both nations can only spell trouble. A global trade war represents a major threat to stability and economic growth which is likely to negatively impact emerging markets.
“An undesirable situation where decelerating growth leads to reduced demand in imports – namely crude oil – could easily destabilise the Nigerian economy,” he said.
The Chinese yuan lost two per cent against the US dollar in the past week, falling for a sixth straight session as trade war concerns continued to weigh on sentiment, prompting rumours that the PBoC would take action to stabilise the currency.
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