Although ratings agency Standard & Poor’s said on Wednesday, that Nigeria will have to devalue its currency again, Central Bank of Nigeria (CBN) said that it would not bow to pressures to further devalue the naira.
A three-day straight slide in the exchange rate of Naira against US Dollar has put the currency in a grave state. Yesterday, the parallel market segment of the foreign exchange market traded one US dollar to N245 after it opened the day at N242/USD1.00. The exchange rate on Tuesday was N240 and N238 on Monday, with dealers Dealers in the market expressing fears that at the ongoing rate the exchange rate might hit the N250/USD1.00 low by next week.
“Another devaluation is inevitable… they will have no option but to devalue,” said Ravi Bhatia, director of sovereign ratings at Standard & Poor’s at a media briefing. According to him, efforts of the authorities to curb fall in the value of the naira which have focused recently on reducing access to hard currency on the official interbank market for importers of some goods, just delay the inevitable. However, Bhatia says he does not expect a ‘one big step’ devaluation. “I think at this stage the plan is to move in increments,” he said.
Standard & Poor’s cut had in March cut its rating on Nigeria to B+, changing its outlook to “stable”. Similar action may be taken by JPMorgan, which warned in June that it could eject Nigeria from its benchmark index by year-end unless it restored liquidity to currency markets in a way that allowed foreign investors to transact with minimal hurdles.
Investors have been nervous that Nigeria might lose its place in the benchmark GBI-EM local currency debt index. There is a high possibility now that this may happen except the government takes action early enough.
“At some point they have to decide: do they want to go with their policies or do they want to stay in, and at the moment they are trying to do both, and it has worked,” said Bhatia.
“But there are issues there, and it is a concern.”