REASONS WHY NIGERIAN NAIRA FACES DEVALUATION

Nigeria faces naira’s devaluation by more than 15%, according to the evaluation of ratings agency Standard & Poor’s – here’s why.

CBN says it is not in the mood to drop naira's rate, but financial analysts insist it is inevitable

Following the recent naira’s devaluations in November and February Nigeria will inevitably have to devaluate its currency, most possibly by more than 15%.

Director of sovereign ratings at Standard & Poor’s Ravi Bhatia told the press that the recent CBN’s measures to keep the naira afloat just delay its nearly inevitable devaluation. “Another devaluation is inevitable… they will have no option but to devalue,” said Bhatia.

Three weeks ago Nigerian authorities introduced stringent restrictions on access to hard currency on the official interbank market for some importers to curb the hard currency’s outflow. However, despite naira’s official exchange rate on Tuesday was 196.95 naira per dollar, the next day, on Wednesday on the parallel market the naira hit another record low of 242 against the dollar. It is expected that official naira’s rate will fall about 18% reaching 233 per dollar in the nearest six months.

At the same time CBN officials have informed the general public that they are not intending to devalue naira to keep its rate in accordance with its real value, reflected by the parallel market.

But this statement raises concerns among investors, who are afraid that Nigeria might lose its membership in The JPMorgan Government Bond Index-Emerging Markets (GBI-EM) due to official policies.

Earlier this summer JPMorgan warned in it could kick the country out from its local currency debt index unless Nigerian authorities restore liquidity to currency markets in a way that allowed foreign investors to transact with minimal hurdles. In Bhatia’s opinion this can be a “real possibility“, though he hopes that Nigerian authorities’ moves will have to avoid this.

Investors insist that devaluation of the naira is a long overdue for Nigeria.

Despite Nigeria’s central bank holds official rate of naira against one dollar, the real value of the national currency is falling.

There is a growing shortfall between increasing demand for foreign currency and the foreign exchange available for sale. And while the central bank tries to keep its official exchange rate low, this tendency of a shortfall between the demand and supply is about to grow further.

source: naij