What can prevent Naira devaluation before June – Experts

January 27, 2020
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Economist in the country have argued that only a radical increase in crude oil prices could prevent the devaluation of Nigeria’s local currency before the second half of 2020.

Speaking recently at the launch of Afrinvest’s Economic and Financial Markets 2020 Outlook, Managing Director of Afrinvest West Africa, Ike Chioke, listed reasons to support why the Naira should be devalued.

He cited Nigeria’s current account, which has weakened over a period of three consecutive quarters. Chioke also mentioned the slower pace with which foreign capital has recently been flowing into the country.

Also, Afrinvest’s Head of Research, Abiodun Keripe, was of the same opinion as Chioke. “We have seen weakness in our current account basically. For the first time since 2015, we have seen 3 quarters of consecutive weakness in the current account balance, which is a sort of precursor to what you would expect around exchange rate stability.

According to him, the slow accretion in terms of capital inflows into the economy doesn’t tell a good story for Nigeria and the economy.

“Looking forward to the rest of the year, there is a potential risk for us to see in increasing pressure around the currency and this is because of the negative current account balances we have sustained in the first three quarters of 2019 which is worrisome. We would probably begin to face this pressure towards the second half of 2020.”

It should be noted that Afrinvest’s prediction aligns with similar 2020 outlooks that have been given by others.

Recall that experts at the 2020 Nairametrics Economic Outlook Hangout argued that the Nigerian might have no choice but to devalue the naira in 2020. Also, EFG Hermes’ prediction that the CBN might have to devalue the naira between 5-10% in 2020.

Bear in mind that these are all speculations, even as it remains to be seen what the Nigerian Government actually plans to do as far as devaluation is concerned. In the meantime, the Central Bank of Nigeria decided to increase the Cash Reserve Ratio by 500 basis points during its first monetary policy committee meeting for the year which held last Friday.

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