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Tag: Devalued

  • S&P wants naira further devalued

    S&P wants naira further devalued

    •Interbank rates hit three-month high

    Ratings agency Standard & Poor’s (S&P), yesterday reinforced its call for the devaluation of the naira.

    I said this shouls happen at some stage in 2016 and in gradual adjustments, saying investors have seen a devaluation of the naira as long overdue after the economy was battered by the tumble in crude prices.

    Despite growing pressure, the government has kept the local currency at around N198 to the dollar on the official interbank market, while restricting access to dollars.

    “Their line has been to try to hold it as much as possible, and they are trying to continue that policy alongside the restrictions on imports as well,” said Ravi Bhatia, Director of Sovereign and International Public Finance at Standard & Poor’s.

    “But at some point, they are going to have to move, but I think they are going to try and do it incrementally and not in big jumps,” Bhatia said, adding he expected this to happen in one or two increments.

    Nigerian non-deliverable currency forwards, a derivative product used to hedge against future exchange rate moves, indicated markets expected the exchange rate at N265/dollar in six months time, and at N284 to the dollar in 12 months’ time.

    Brent crude accounts for about 95 per cent of foreign earnings. A devaluation would only go some way to improve the country’s situation, said Bhatia. “It will help a little, but the problems aren’t going to go away – there is no easy avenue for them really,” he said. He saw government talk of shifting to non-oil revenue as “overstated” and not easy to do. “Nigeria is going to face a very tough year in 2016.”

    Meanwhile, the overnight interbank lending rate rose sharply to five per cent, its highest since October, after the central bank drained naira liquidity through sales of (OMO) treasury bills, traders said.

    There was no official comment on the sudden rate rise, but higher rates could support the naira. The government, fighting intense pressure on the currency from the collapse in prices for Nigeria’s oil exports, has pegged the currency at around 198 per dollar on the official interbank market.

  • Naira may be devalued, says S&P

    Naira may be devalued, says S&P

    Nigeria would have to devalue its currency at some stage, possibly by more than 15 per cent, ratings agency Standard & Poor’s said yesterday.

    It said although it saw the adjustments as likely, it said the implementation would   be gradual.

    Investors have seen a devaluation of the naira as long overdue for Nigeria, seen as Africa’s largest economy and biggest oil exporter, which has been battered by the recent tumble in crude prices.

    Following devaluations in November and February, authorities have focused recently on curbing access to hard currency on the official interbank market for importers of some goods, introducing stringent restrictions three weeks ago.

    But those measures just delayed the inevitable, said Ravi Bhatia, Director of Sovereign Ratings at Standard & Poor’s.

    “Another devaluation is inevitable… they will have no option but to devalue,” said Bhatia at a media briefing. Many investors are positioning for a devaluation of around 15 per cent. Bhatia said that sounded “reasonable”, though even more might be needed.

    Non-deliverable forwards (NDF)- derivatives used to hedge against future exchange rate moves – reflect expectations of currency weakening: six-month NDFs price the naira at N233 per dollar, some 18 per cent weaker than the central bank pegged rate of N196.95 on Tuesday.

    Yesterday, the naira hit another record low of N242 against the dollar on the parallel market operated by dealers in bureaux de change, down  0.42 per cent from Tuesday. The naira has been hitting record lows on the parallel market since the latest apex bank measures introduced three weeks ago.

    Bhatia did not expect the adjustment to be done in one go. “I think at this stage, the plan is to move in increments, not to do a ‘one big step’ devaluation like they would in the old days,” he said.

    The central bank has said it is in no mood to devalue the naira, given the risks to inflation from a weaker currency, and that it will not be focusing on the thinly traded parallel market when determining the exchange rate.

    Investors have also been nervous Nigeria might lose its place in the benchmark GBI-EM local currency debt index. Bhatia said this was a “real possibility”, although he expected the government to adjust policy enough to maintain its membership.

    “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.” JPMorgan warned in June 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.

  • MTN expects naira to be devalued after 2015 election

    MTN expects naira to be devalued after 2015 election

    MTN Group Limited (MTN), Africa’s largest phone operator, said Nigeria’s currency will probably be devalued after next year’s election and the move will boost the company’s import costs in its biggest market.

    Declining oil exports and prices means that the central bank of Africa’s biggest crude producer will face difficulties in keeping the naira stable against the dollar before the Feb. 14 vote, Andrew Bing, chief financial officer of MTN’s Nigerian unit, said in a May 5 interview in Lagos, the commercial capital. The official peg may have to be lowered by three or four percent, he said.

    Nigeria’s foreign-exchange reserves declined 13 percent this year to $38.1 billion by May 2 as the central bank sold dollars to prop up the naira and as oil production missed estimates. Godwin Emefiele, who becomes the institution’s governor in June, told the Senate in March that a devaluation of the naira is “not an option” and would be “devastating” for the economy.

    “No matter what Godwin wants it has to happen, otherwise this economy in a year will be down the tube,” said Bing, 49, who is leaving his position for a sabbatical at the end of this month. “I don’t think it will happen this year,” he said. A devaluation would be “politically unpalatable” and it may rather happen “after the election,” Bing said.

     

     

     

     

     

     

  • Naira may be devalued after 2015 elections, says economist

    Naira may be devalued after 2015 elections, says economist

    The naira may be devalued after the 2015 elections if there is “a significant drop” in the foreign reserves, an economist has predicted.
    Charles Robertson, the Global Economist of Renaissance Capital (RenCap), in a report titled: “Nigeria/Kazakhstan comparison and oil sales”, said: “Cumulative deterioration in the foreign reserves in 2013 and 2014 implies devaluation in 2015, after the selections.”
    Renaissance Capital is a financial intermediating and reserach firm.
    Robertson said though he was working on the assumption that there should be no devaluation in 2014, “there is a risk that the incoming Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele, may devalue the naira, as Kazakhstan’s central bank governor did in coming to office in February 2007.
    He, doubted the devaluation taking place before the elections, saying such an action would be unpopular for an import-dependent nation.
    “We think a N160 to N170 to dollar target range is likely. One upside for the government from a weaker naira would be more naira from dollar oil tax revenue,” he said.
    The economist said foreign exchange reserves, which stood at $38 billion, would drop to $35 billion by the end of the year.
    He explained that if such a decline occurs, it would imply greater weakness of the naira than the current N164 to a dollar end-year assumption, but added that the Central Bank of Nigeria (CBN) would counter-act the position, by tightening monetary policy.
    “We assume foreign exchange reserves will fall from $44 billion in 2013 to $35 billion this year – a decline of $9 billion.That would imply greater weakness than our current N164 to a dollar end-year assumption. But we expect the CBN to counter-act this, by tightening monetary policy,” Robertson said.
    He said the last time the CBN devalued the naira was in 2011, following the $11 billion drop in foreign reserves.
    Robertson said: “We believe reserves will likely fall further in 2014 on the back of subpar oil production and higher imports due to election-related spending. We think the cumulative deterioration in Nigeria’s external position in 2013 and 2014 implies devaluation in 2015, after the elections; a devaluation before the elections would be unpopular for an import-dependent nation. We think a N160 to N170 to dollar target range is likely. One upside for the governent from a weaker naira would be more naira from dollar oil tax revenue.”
    The global economist explained that the CBN sees no obvious advantage for Nigeria from naira devaluation.
    Like Kazakhstan, Robertson said the naira has come under pressure recently from the US Federal Reserve’s tapering policy, and its current account surplus is likely to decline as imports rise in the run up to the February 2014 elections.
    The foreign exchange reserves last week, rose slightly to $38 billion, about $200 million higher than the $37.8 billion the previous week, data obtained from the CBN showed.
    The reserves had maintained steady decline in recent months after closing last year at $42.85 billion. The year-end figure represented a decrease of $0.98 billion or 2.23 per cent compared with $43.83 billion at end- December 2012. The reserves further dropped to $38.79 billion as at March 12. The reserves were at $42.77 billion on February 3, and dropped to $39.72 billion on March 3.
    Analysts said the reserves declined as imports of fuel and foods soared. But the CBN said the decrease was driven largely by the increased funding of the foreign exchange market in the face of intense pressure on the naira and the need to maintain stability.
    The CBN said the pressure on external reserves was deemed to be consistent with the seasonal annual payment of dividends to foreign investors.