Investors, FG disagree over Naira stability

By Odunewu Segun

While the Federal Government of Nigeria are increasingly confident that Nigeria’s local currency, Naira, woes in the last two years are over for good, some foreign investors have expressed their reservations.

Recall that the Central Bank of Nigeria’s Governor, Godwin Emefiele and Patience Oniha had in October informed investors that the Naira has been strengthened following the rise in portfolio inflows in the past three months.

But a drop in Brent crude to around $50 a barrel would probably be enough to push Nigeria’s current account back into deficit, according to Bank of America Corp., which sees the naira falling to 432 per dollar by the end of 2018.

That could force Nigeria, which has long leaned on the CBN not to let the currency weaken, to choose between selling down its reserves or saving them at the expense of foreign-exchange liquidity.

Brett Rowley, MD of TCW Group Inc which oversees $200 billion investments said that could change if oil witnessed a significant drop in production and prices. “At the moment, it’s easy for them to manage the current system and muddle through.”

“It’s all looking rosy at the moment for Nigeria,” said Kevin Daly, a fund manager in London at Standard Life Aberdeen, which started buying T-bills soon after the Nafex window opened. “But that could easily change. Will the authorities be comfortable letting the naira drop to 380? That’s not been tested.”

In the longer run, he says, Nigeria will struggle to sustain tight monetary policy, which is key to attracting foreign investors, and import restrictions if it wants the economy to pick up. Output contracted last year for the first time in three decades.

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National Daily gathered that yield-starved global investors have piled billions of dollars back into the country in the second half of this year, attracted by the naira’s devaluation after the Nafex window opened in April and yields on one-year Treasury bills that were above 20 percent for most of the year.

Foreign holdings of Nigerian government debt may have more than doubled from around 5 percent a year ago, according to Standard Chartered Plc. That’s helped the naira to appreciate two percent since August to 355.49 per dollar, trimming its loss in 2017 to 13 percent.

For now, Nigeria’s benefiting from a bullish oil market and rampant demand for developing-nation assets. Crude prices have increased 34 percent since June as OPEC members including Saudi Arabia push for output cuts to continue in 2018.

And production in Nigeria, which is exempt from the curbs, has risen 15 percent this year to 1.7 million barrels a day. Foreign reserves are up to $34 billion, the highest in almost three years.

The CBN keeps its official exchange rate, used for government transactions and fuel imports, pegged at 305 against the dollar, almost 20 percent stronger than the Nafex rate.