Naira Stable but Only for the Short-Term; Learn Why

naira
Photo/Ibtimes.com

The depreciation of the naira is unlikely in the next coming months. Shortly after the fall and rise of the nations’s currency The Central Bank of Nigeria’s Governor Godwin Emefiele committed to “currency stability.” In February of this year the naira to dollar exchange rates fell to record-lows.

Although, CBN is dealing with some of its own internal issues the marked devaluation of the naira that was forecast is not expected in the short-term, but unfortunately, is expected in the long-term, as Samir Gadio explains:

Three-month NDFs have appreciated 13% in the past month to the strongest level since December, and are now trading at 220, compared with a spot rate of 199 naira per dollar. Contracts expiring in 12 months are trading at 279, or 40 percent weaker than the spot rate, suggesting that a depreciation is inevitable in the longer term.

Samir Gadio, head of Africa strategy at Standard Chartered Bank Plc in London, continues, “the market doesn’t expect any currency adjustment in the short-term,” though “weak oil prices and weak fundamentals eventually will lead to some sort of exchange-rate adjustment.”

The economy has only grown 2.8%, its slowest rate since 1999 and there continues to be a huge demand for dollars but no supply, rather than depreciate the naira again, the bank has restricted access to foreign currency and banned a long list of imports. Which may beg the question of how the economy is expected to grow with less access to imports in a capitalist based market with currency scarcity?

President Muhammadu Buhari has resisted the IMF’s calls to devalue the naira – a tactic that has helped other African nations cope with economic stress.

(With information from Bloomberg News and International Business News)