By Babajide Komolafe
Analysts have predicted that the naira will be further devalued to N215 per dollar saying the current official exchange rate does not reflect the fair value of the currency.
“The writing is on the wall that a further devaluation of the naira is in the offing as this is probably the only measure that will halt its loss in value”, said Analysts at the Financial Derivative Company (FDC) Limited
Also, analyst at Ecobank said, “Given recent developments domestically, and within an environment of lower oil prices and sustained strengthening of the dollar, it is possible that the Central Bank of Nigeria could be forced to raise interest rates shortly and/or devalue the naira once again.
Mixed naira performance
Meanwhile the naira recorded mixed performance from Monday to yesterday at the interbank and parallel market. At the interbank market, the naira depreciated by N1.92 kobo, as the interbank exchange rate rose to N192 yesterday from N190.18 last week. At the parallel market, the naira appreciated by N4, as the parallel market exchange rate dropped to N204 yesterday from N208 last week due to the 100 percent increase in weekly dollar sales to bureaux de change (BDCs) by the Central Bank of Nigeria (CBN). From N15,000 per week per BDC, the CBN increased it to $30,000, in a bid to boost supply and halt the depreciation of the naira at the parallel market.
On November 24th 2014, the CBN devalued the naira by 8.3 percent, moving the midpoint of the official exchange rate to N168 per dollar from N155. In addition the apex bank introduced series of measures to stem the persistent depreciation of the naira in the interbank and parallel markets. According to FDC Analysts, “These measures have had little or no effect in dousing the severe attack on the currency. JP Morgan‘s move of putting Nigeria on negative watch spurred a run on the currency which prompted an immediate intervention by the CBN.
We expect a minimum of a three to five (3-5) percent further devaluation in the currency. Since the Monetary Policy Committee (MPC) did not make any adjustments in its January meeting, citing the need to allow the changes made in November to manifestin the earliest possible time. For the committee to react will be at the next meeting in March.“ The CBN will continue to intervene in the markets to keep the naira afloat, at the detriment of the external reserves.
Bank of America Merrill Lynch (BofAML) is of the opinion that the necessary policy actions 200bps rate hike and naira devaluation) will not be taken until after the February elections. The bank is projecting that the naira will trade at an average of N202 in 2015.”
Also commenting on recent efforts of the apex bank to stabilise the naira exchange rate, Ecobank Analysts, in the Bank’s Middle Africa Briefing Note, stated, “Should devaluation take place (assuming oil prices remain low or fall further), one constraint to the timing are the presidential and legislative elections scheduled on 14 February (a delay over voter registration could lead to a postponement by up to 90 days). “In the immediate future, dollar demand at the RDAS and interbank market is likely to fall, which in turn would reduce pressure on the NGN. This would likely be seen as a major success by the CBN in addressing some of the main sources of pressure on the currency.
“However, pent up demand will not simply disappear. The dollar supply gap created in the bureaux de change (BDC) market as a result of circular will raise NGN volatility, with further depreciation most likely in the weeks ahead. As a result, we expect the naira to trade on the interbank market between N200 to N220 per dollar”