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The plunge in oil prices is piling pressure on Nigeria to devalue the naira as dwindling export revenue depletes foreign-exchange reserves, curbing the central bank’s ability to support the currency.
The central bank’s reserves have decreased by 20 percent in the past two years to the lowest since November 2017, and may soon reach the $30 billion threshold set by Governor Godwin Emefiele for the country to consider a devaluation, Jason Daw and Phoenix Kalen, strategists at Paris-based Societe Generale SA, wrote in note on Monday. The central bank may start adjusting currency policy before it reaches that point, they said.
Naira fundamentals are on an unsustainable trajectory and under current external conditions, especially lower oil prices, the risk of a devaluation is “very elevated”, the SocGen strategists wrote.
“The combination of a current-account deficit — previously due to strong imports but now being compounded by weak exports — portfolio outflows and lower oil prices will continue to deplete FX reserves and pressure the naira.”
The naira extended a decline in offshore trading yesterday, slipping 0,2 percent to 366,45 per dollar, the weakest level on a closing basis in almost three years. – Bloomberg.
Online Reporter