Analysts have said that an economic storm looms following the appointment of a new Central Bank of Nigeria (CBN) governor, pre-election fiscal expansion and potential pullback in oil prices.
They noted that these factors form a perfect storm of uncertainty for the naira in 2014 prompting fears of a plunge in the currency.
Capital Economics, a research and consultancy firm, predicts that out of the main African currencies, the naira is set to fall the furthest as oil prices dip.
The naira (NGN) has lost 1.3 percent against the dollar (USD) this year on the interbank market and traded at 158.49 as at 1:42pm in Lagos last Friday.
Six months FX forwards for the naira are, however, pricing 7 percent lower at 169.73 per dollar, according to data from the FMDQ.
“The main risk to USD/NGN would come from a potential shift towards a more accommodative monetary stance that would be counter-productive in addressing the likely loss in confidence in the NGN ahead of the 2015 elections, coupled with a loose fiscal stance and a possible start of QE tapering,” said Samir Gadio, emerging markets strategist at Standard Bank, London, in a response to questions.
The CBN has supported the naira this year by selling foreign currency at its twice-weekly auctions to keep the unit within a range of plus or minus 3 percent around 155 per dollar.