By Dike Onwuamaeze

S& P

The Standard and Poor’s has declared that the Central Bank of Nigeria (CBN) cannot do without further devaluation of the Naira. The agency, however, said the adjustments would be gradual.

Ravi Bhatai, director, Sovereign Ratings, Standard & Poor’s,  said the recent measures by the CBN including stopping the sale of forex to importers of 41 items at the official forex markets could only delay the inevitable. “Another devaluation is inevitable… they will have no option but to devalue,” said Bhatia at a media briefing. He claimed that many investors are positioning for a devaluation of around 15 per cent as “reasonable” even though more might be needed.

Already, market variables like non-deliverable forwards which are derivatives used to hedge against future exchange rate moves, are reflecting expectations of currency weakening: six-month NDFs price the naira at 233 per dollar, some 18 per cent weaker than the CBN’s pegged rate of 196.95 on Tuesday.

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‘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.

However, Bhatia pointed out that local and foreign investors have also been nervous that Nigeria may 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. But there are issues there, and it is a concern,” Bhatia said.

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