THERE seems to be no respite for the naira, as international rating agency, Standard and Poor’s, on Wednesday, said the Federal Government will have to further devalue the currency by as much as 15 per cent.
According to the agency, the current value of the currency is neither real nor sustainable.
Speaking at a media briefing on Wednesday, Ravi Bhatia, Director of Sovereign Ratings at Standard & Poor’s, said “another devaluation is inevitable. The government will have no option but to devalue.”
He said 15 per cent devaluation would be just good.
Investors believe that devaluation of the naira is long overdue for Nigeria, which had been battered by the recent tumble in crude prices.
This view was canvassed by bank chief executives at a CEO roundtable organised by Bloomberg and the Nigeria Stock Exchange (NSE) in June.
Mr Bisi Onasanya, Group Managing Director/Chief Executive Officer, FirstBank Plc, speaking at the roundtable, had said banks could not support the naira at the current artificial level in the official market, calling for further devaluation of the currency.
According to him, “it is not sustainable and the longer we continue to hold unto this, the more we send signals to the international market that we are not serious as a country.
“There has to be some adjustment in the present level of the naira. There has to be a re-opening of the market for activities to continue in the market, otherwise, the economy will be at a standstill.”
But the Central Bank of Nigeria (CBN) has consistently maintained that its decision not to further devalue the naira is consequent upon its resolve to safeguard the Nigerian economy from the shocks and negative impact the depreciation would have on the economy.
Following devaluations in November and February, the CBN has recently focused 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 delay the inevitable, said Bhatia, director of sovereign ratings at Standard & Poor’s.
“There is no point delaying further devaluation,” he said.
On Wednesday, 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’s value. The naira has been hitting record low on the parallel market since the latest CBN measures introduced three weeks ago.
Bhatia, however, 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.
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, adding that “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.
In March, Standard & Poor’s cut its rating on Nigeria to B+, changing its outlook to “stable”.ax
