The naira is at risk of being devalued after President Goodluck Jonathan suspended the central bank governor last week, eroding confidence in monetary policy and sending the naira to a record low.
The naira, which rose for the first time in six days on Monday, posted its biggest five-day drop in eight months last week. The yield on Nigeria’s July 2023 dollar bond had its steepest one-day jump on record after Sanusi Lamido Sanusi’s removal on February 20. The security has lost 2.3 percent this year, compared with a 0.6 percent drop in the JPMorgan Chase & Co. index of African sovereign debt.
While the acting governor pledged continuity in policy on February 21, saying there were no plans to devalue the currency, the central bank will have to fight to keep the naira within its targeted range of 3 percent above or below N155 at twice-weekly foreign-exchange auctions. The peg may be shifted to N170 per dollar, boosting inflationary pressures, according to Yvonne Mhango at Renaissance Capital.
“The market seems to be anticipating a devaluation,” Mhango, a sub-Saharan Africa economist at RenCap, said in a February 21 phone interview from Johannesburg. “Given the loss of confidence and sentiment turning against Nigeria, I think they’re going to struggle to keep the naira at present levels.”
The suspension of Sanusi, 52, followed the governor’s calls for an investigation in December into billions of dollars in missing oil revenue. Sanusi, who was due
to leave office at the end of his term in June, oversaw a drive for stability in the country’s economy. Sarah Alade, his deputy, was named acting governor.
Nigeria’s “economic fundamentals cannot be predicated on a single human being,” central bank spokesman, Ugochukwu Okoroafor, said by phone from Abuja on Monday. “The person coming to succeed Sanusi is a strong player in the industry and knows what to do on monetary policy. There is no basis nursing fears of a devaluation.”
Alade has given assurances that monetary policy won’t change, Doyin Okupe, a spokesman for Jonathan, said in a mobile-phone text message on Monday. “The initial fluctuations following the suspension have stabilised,” he said. There’s “no indication whatsoever that a devaluation of the naira will occur,” Okupe said. Sanusi could return if cleared of allegations, Jonathan said on NTA television on Monday, adding it was within his powers to remove the central bank chief.
The currency gained 0.1 percent to N164.35 per dollar by 10:34 a.m. in Lagos, strengthening for a second day after the Central Bank of Nigeria auctioned $399.7 million to lenders. It also sold dollars directly to banks, Kunle Ezun, an analyst at Ecobank Transnational Inc. in Lagos, said by phone Monday.
The bank’s Monetary Policy Committee has kept the benchmark interest rate at a record high of 12 percent for more than two years, pushing inflation below 10 percent. Consumer-price growth climbed above 15 percent in the first half of 2010.