Currency News: Speculation About The Nigerian Naira’s Devaluation
Currency News
Many in Nigeria are worried that their government will let the naira weaken as traders focus on signs that the African country might revamp its foreign-exchange policy soon.
Earlier this week,three-month non-deliverable forwards on the naira weakened to 259 per dollar, suggesting a 23% devaluation from the spot rate of 199 per dollar. Over a year-long period, the market is currently pricing in a 36% devaluation of the currency.
Fallen commodity prices have affected many developing countries, most note ably Egypt, Kazakhstan, and Azerbaijan.
Since Wednesday speculation over the potential devaluation has increased. Especially due to Nigeria’s vice president, Yemi Osinbajo, who said that the country would “substantially reevaluate” its foreign-exchange policy and a “more flexible approach” to the currency should be expected soon.
The Nigeria’s economy has been heavily hit by the plunge in oil prices. The government has imposed stringent capital controls to stem the outflows and ease the pressure on its currency. However, these measures have not been too successful as it has driven away many long-term investors and causing local manufacturers to suffer from shortages of imported raw materials.
Some investors are skeptical of Nigeria move to weaken the currency. “At the end of the day, it’s President Buhari’s decision. It’s a matter of what he is prepared to accept,” said Charles Robertson, global chief economist at Renaissance Capital. Mr. Robertson said the president’s previous statements suggested he was reluctant to devaluate the currency as it was historically associated with a deep recession in its economy.
