Analysts in a Reuters poll yesterday said the Central Bank of Nigeria (CBN) will devalue the naira in the next few months and will also hike interest rates next week and again in November to control inflation.
All but one of 12 analysts polled in the past few days said the currency would be devalued, with a median expectation it would be weakened by 15 per cent. Many were reluctant to be pinned down on when.
CBN governor Godwin Emefiele said in March the bank would keep the naira exchange rate stable despite a sharp fall on the parallel market due to a dollar shortage. the apex bank denied a report that it planned to weaken the naira.
Yet talk of a devaluation has been rife since Vice President Yemi Osinbajo said on Wednesday the central bank needed to change its foreign currency policies to spur investment.
“(Nigeria) has again come under immense pressure to devalue the official naira exchange rate, and the probability of this happening in the near term is high in our view,” said Cobus de Hart at research consultancy NKC African Economics.
De Hart listed risks such as a severe production shock, forex shortages spilling over to the monetary environment, unions becoming more vocal and growing opposition to a stable naira within government circles as pressure to devalue.
The naira traded at a record low versus the dollar in the non-deliverable forwards market on Tuesday, with markets betting on a devaluation to tackle a spiralling economic crisis.
On the official market the central bank has put in place controls to make sure the currency does not fall below N199 per dollar.
Nigerian interest rates, meanwhile, were seen rising as soon as Tuesday. As high inflation is turning real rates negative, economists expect a 100 basis point rise to 13 per cent on May 24 – matching the central bank’s March increase. Another 100 basis point hike is expected in November.
Nigeria is expected to punch way below its growth potential of around 6 percent. Its economy will grow 2.5 per cent this year and 3.5 per cent next, the poll found.
Analysts were sceptical about saying the devaluation would be announced next Tuesday when the central bank is due to announce any changes to monetary policy, though say there may be some form of extraordinary measures.
Bismarck Rewane, chief executive of Lagos consultancy Financial Derivatives suggested the central bank could announce a dual currency exchange.
Renaissance Capital’s global chief economist, Charles Robertson, said while authorities would be reluctant to float the naira they may instead introduce Venezuela-style dual-exchange rates, with an officially endorsed parallel rate around 285 per dollar.
Still, Aly Khan Satchu, an independent analyst and investor at Rich Management in Nairobi said the President had been betting the equivalent of a single number at the Roulette wheel.
