Renaissance Capital (Rencap) says that another round of naira devaluation from N168 per dollar to N200 per dollar is imminent.
This is as Bismarck Rewane, chief executive officer, Financial Derivatives Company, said the decline in oil prices will persist and lower oil prices will likely be sustained in H1’2015.
It said this in a recent currency report entitled, ‘The Naira’, made available to BusinessDay on Thursday.
According to Rencap, “Since the November devaluation, the oil price has dropped by 35 percent, to $50 per barrel, and the spread between the DAS exchange rate and the interbank rate is even wider than it was during the global crisis. We think this implies that further devaluation is likely in the short term”.
Similarly, Bismarck Rewane, chief executive officer, Financial Derivatives Company, said last night in ‘Synopsis of the 2015 Outlook’, that the decline in oil prices will persist and lower oil prices will likely be sustained in H1’2015.
Rewane projects the fall to below $50pb before recovery, adding, however, “expect a slight rebound in H2’2015.”
This, he said, will lead to about $70pbl in Q3 with revenue shortfall of 45% with possibility of deficit financing, borrowing and further depletion of ECA.
The MPC in its last meeting for 2014 devalued the naira by 8 percent to N168 from N155 per dollar, and widened the target band to +/- 5 percent, from +/- 3 percent. The MPC also tightened monetary policy by increasing the policy rate by 1 percentage point to 13 percent and raising the private sector CRR to 20 percent from 15 percent.
According to Rencap, another devaluation is likely in the short term due to persistent decline in oil prices and this could lead to an adjustment of the midpoint of the official rate to N200/$ from N168/$ today.
The analysts believe that this implies an overall devaluation of 30% could happen in the January meeting, but authorities would prefer to wait until after elections.
The wider spread between the DAS and interbank rates, this time around, may partly reflect Nigeria’s significantly lower FX reserves of $34 billion today compared with a peak of $62 billion in September 2008, the report said.
“CBN sold $450 million at the FX auction on January 7. This was more than double what the CBN made available at the previous auction on January 5 – $180 million, and what was sold per auction in December. The last time the central bank sold almost half a billion dollars at an auction was in October – which preceded a devaluation,” the Rencap report adds.
The CBN also rolled out several policies targeting the banks, some of which include the mandate that banks were to close out their dollar positions at the end of every trading day, while cutting the FX trading position limit for banks to 0 percent from 1 percent. This led to fears about Nigeria’s ability to repatriate dollars.
External reserves which stood at $43.5 billion at the beginning of 2014 dropped to $34.49 billion by December 30, 2014, according to latest figures made available by the CBN. There are speculations that the MPC meeting will be postponed till after the elections in February due to political considerations.
Nigeria has been unable to boost its foreign currency reserves during four years of high oil prices, raising questions about the CBN and the fiscal authority’s ability to weather the current storm.
The last time the oil price plummeted 2008 to 2009– the naira was devalued at the official window in two stages by 24 percent overall to NGN146 to a dollar from NGN118 to a dollar previously.
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