Standard & Poor’s Calls for Further Devaluation of Naira

Ratings agency Standard & Poor’s (S&P), on Thursday, January 21, reechoed its call for the devaluation of the naira.

The agency said this should happen at some stage in 2016 and in gradual adjustments, saying investors have seen a devaluation of the naira as long overdue after the economy was battered by the tumble in crude prices.

Despite growing pressure, the government has kept the local currency at around N198 to the dollar on the official interbank market, while restricting access to dollars.

“Their line has been to try to hold it as much as possible, and they are trying to continue that policy alongside the restrictions on imports as well,” said Ravi Bhatia, Director of Sovereign and International Public Finance at Standard & Poor’s.

“But at some point, they are going to have to move, but I think they are going to try and do it incrementally and not in big jumps,” Bhatia said, adding he expected this to happen in one or two increments.

Nigerian non-deliverable currency forwards, a derivative product used to hedge against future exchange rate moves, indicated markets expected the exchange rate at N265/dollar in six months time, and at N284 to the dollar in 12 months’ time.