Naira to weaken de­spite resur­gent oil price

The Star Early Edition - - BUSINESS REPORT / INTERNATIONAL - Paul Wal­lace

THE NIGE­RIAN naira’s re­cov­ery in the for­wards mar­ket may be de­cep­tive. The cur­rency is des­tined to weaken, how­ever long pol­i­cy­mak­ers hold out.

Last week six-month con­tracts de­clined to their low­est level since last Septem­ber as crude oil ad­vanced about 20per­cent af­ter Opec agreed a pro­duc­tion cut in Novem­ber.

A drop in for­wards would be a sign of grow­ing con­fi­dence in a na­tion’s econ­omy and cur­rency, but not this time. Even as oil prices ad­vanced, Stan­dard Char­tered and Duet As­set Man­age­ment said the na­tion needed to de­value the naira and loosen cap­i­tal con­trols.

With dol­lars be­com­ing scarcer and the econ­omy on the brink of its first full-year re­ces­sion since 1991, busi­nesses are be­ing forced into the black mar­ket. There, each dol­lar costs 493 naira (R21), al­most 60 per­cent more than the of­fi­cial rate.

“Oil’s rise is not enough to elim­i­nate the need for a change,” said Ay­o­dele Salami, the chief in­vest­ment of­fi­cer at Duet. Nige­ria would not at­tract in­flows un­til it weak­ened its cur­rency.

While the naira has plum­meted al­most 40per­cent since cen­tral bank gov­er­nor, God­win Eme­fiele, last June ended a 15-month peg to the US dol­lar, traders said it was still be­ing man­aged by the govern­ment. Pres­i­dent Muham­madu Buhari, who has likened de­val­u­a­tion to “mur­der”, said he was still against float­ing the cur­rency, Cable News­pa­per re­ported.

“Even­tu­ally, they will have to re­vert to a more flex­i­ble cur­rency regime,” said Samir Ga­dio, the head of Africa strat­egy at Stan­dard Char­tered, which fore­casts the of­fi­cial ex­change rate will be steady for at least the first half of this year. “But for the time be­ing, there’s no in­di­ca­tion from pol­i­cy­mak­ers that this will hap­pen.”

For­ward con­tracts ma­tur­ing in a month closed at 318.5 a dol­lar last Fri­day.

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