Naira Devaluation: See Why Nigeria May Devalue Naira In 2017

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NAIRA DEVALUATION: Nigeria will devalue its currency, the naira, later this year in an effort to improve liquidity and close the gap between the official and exchange parallel markets.

A Reuters poll has shown so even though Central Bank of Nigeria (CBN) Governor Godwin Emefiele has said he would not devalue the naira.

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An analyst and investor at Rich Management in Nairobi. Aly-Khan Satchu said about the naira devaluation:

“The possibility of a (naira) devaluation is certain; the question is the timing. They are eventually going to capitulate at some point this year, a similar scenario to Egypt at the end of last year – a big devaluation in the official rate.

“Nigeria stubbornly held on to an official peg of 197 Naira to the dollar for 16 months, until June of last year, hurting the economy. It subsequently floated the currency but maintained some measures to prevent further weakening. The naira currently trades at 305 per dollar. Dollar shortages meant the currency fell to close to 500 against the dollar last week on the unapproved open retail market.”



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Satchu said keeping the currency artificially high is effectively stalling the economy and making investment difficult.

The CBN is expected to leave its benchmark interest rate unchanged on Tuesday, and for the rest of the year, at 14 percent to halt rising inflation and support growth, the wider poll of 12 economists also found. After the apex bank added 300 basis points to borrowing costs last year to try and tame soaring prices, all 11 analysts surveyed said they expected it to keep its benchmark rate on hold next week.

Inflation was uncomfortably high at 18.55 percent in December, its highest in more than 11 years and the 11th straight monthly rise.

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Galloping inflation comes as Africa’s largest economy grapples with its first recession in 25 years, largely caused by the decline in global oil prices since 2014. Crude oil sales account for 70 percent of government revenue. Inflation is expected to average 15.2 percent this year and slow to 11.0 percent in 2018.