Nigeria will devalue its currency, the naira, later this year in an effort to improve liquidity and close the gap between the official and exchange parallel markets, a Reuters poll has shown.
That expectation by seven of the nine economists polled this week comes even though Central Bank of Nigeria (CBN) Governor Godwin Emefiele has said he would not devalue the naira.
An analyst and investor at Rich Management in Nairobi. Aly-Khan Satchu, said: “The possibility of a devaluation is certain; the question is the timing. They are eventually going to capitulate at some point this year, a similar scenario to Egypt at the end of last year – a big devaluation in the official rate.
“Nigeria stubbornly held on to an official peg of 197 naira to the dollar for 16 months, until June of last year, hurting the economy. It subsequently floated the currency but maintained some measures to prevent further weakening. The naira currently trades at 305 per dollar. Dollar shortages meant the currency fell to close to 500 against the dollar last week on the unapproved open retail market.”
Satchu said keeping the currency artificially high is effectively stalling the economy and making investment difficult.
The CBN is expected to leave its benchmark interest rate unchanged on Tuesday, and for the rest of the year, at 14 per cent to halt rising inflation and support growth, the wider poll of 12 economists also found. After the apex bank added 300 basis points to borrowing costs last year to try and tame soaring prices, all 11 analysts surveyed said they expected it to keep its benchmark rate on hold next week. Inflation was uncomfortably high at 18.55 per cent in December, its highest in more than 11 years and the 11th straight monthly rise.
Galloping inflation comes as Africa’s largest economy grapples with its first recession in 25 years, largely caused by the decline in global oil prices since 2014. Crude oil sales account for 70 per cent of government revenue. Inflation is expected to average 15.2 per cent this year and slow to 11.0 per cent in 2018.
Cobus de Hart of NKC African Economists in a client note, said:“High inflation, however, remains the main stumbling block at this stage, but the CBN may become more willing to gradually loosen its grip on the naira as inflationary pressures start to ease somewhat this year.”
The economy is expected to grow 1.5 per cent this year and 2.9 per cent next, although the most bearish analyst said it is possible the economy will contract 1.5 per cent this year. (The Nation)