Rewane sees further devaluation as naira wobbles against dollar
The Nigerian currency is expected to be further devalued this year as it is overvalued by 28.79 percent, a renowned economist, Mr Bismarck Rewane, has said.
The naira has been fluctuating in recent months, plunging on Nov. 30 to 500 per dollar at the parallel market, its lowest level in more than three years. It, however, rose to 470/$1 on Jan. 7, 2021, but started falling the next day.
On Friday, the local currency closed at N480/$1 at the parallel market and N396.17/$1 at the Investors & Exporters’ Window.
The Central Bank of Nigeria has kept the official exchange rate at N379/$1 since August, when the naira was devalued for the second time. It was first devalued to 360 in March from 306.
Rewane, managing director of Lagos-based Financial Derivatives Company Limited, said the exchange rate pressures would persist at both parallel market and I&E window on increased foreign exchange demand.
“Another currency adjustment likely to keep the NAFEX and official rates closer. Official rate could be devalued to N450.1/$ – EIU. Exchange rate convergence to continue but unification is unlikely in the near term,” he said in a presentation on Friday.
He said with oil prices up 11 percent to $59 per barrel year-to-date, external reserves down 0.88 percent ($320mn) to $36.2 billion since Jan. 26, the exchange rate at the I&E window could weaken to between N400/$ and N410/$ by March.
He said widening current account deficit and dollar liquidity shortages would increase currency pressures.
“Another devaluation of the official rate to N450.1/$ in 2021 could boost terms of trade to $26.2 billion,” Rewane added.
He said the exchange rate policy would likely be more market-determined, adding that the CBN would likely reduce forex rationing and bolster external reserves.
The economist sees the CBN allowing a crawling peg to bring inflation under control, saying, “A crawling peg will effectively allow the naira to fluctuate within a band – permitting a managed depreciation, rather than a one-off devaluation.”
“This will be transparent for investors and reduce uncertainty. The crawling peg could be based on (Nigeria-US) inflation differential – currently at 14.35 percent,” he added.
