The naira is at risk of being devalued after President Goodluck Jonathan suspended the Central Bank Governor, Mr. Lamido Sanusi, last week, eroding confidence in monetary policy and sending the naira to a record low.
Bloomberg reported that the naira, which rose for the first time in six days on Monday, posted its biggest five-day drop in eight months last week.
The yield on Nigeria’s July 2023 dollar bond had its steepest one-day jump on record after Sanusi’s removal on February 20. The security has lost 2.3 per cent this year, compared with a 0.6 per cent drop in the JPMorgan Chase & Co. index of African sovereign debt.
While the acting governor pledged continuity in policy on February 21, saying there were no plans to devalue the currency, the central bank will have to fight to keep the naira within its targeted range of three per cent above or below 155 at twice-weekly foreign-exchange auctions.
The peg may be shifted to 170 per dollar, boosting inflationary pressures, according to Yvonne Mhango at Renaissance Capital.
“The market seems to be anticipating a devaluation,” Mhango, a sub-Saharan Africa economist at RenCap, said in a February 21 phone interview from Johannesburg. “Given the loss of confidence and sentiment turning against Nigeria, I think they’re going to struggle to keep the naira at present levels.”
The suspension of Sanusi, 52, followed the governor’s calls for an investigation in December into billions of dollars in missing oil revenue.
Sanusi, who was due to leave office at the end of his term in June, oversaw a drive for stability in Africa’s second-biggest economy. Sarah Alade, his deputy, was named acting governor.
Nigeria’s “economic fundamentals cannot be predicated on a single human being,” a central bank spokesman Ugochukwu Okoroafor said on the phone from Abuja on Monday.
“The person coming to succeed Sanusi is a strong player in the industry and knows what to do on monetary policy. There is no basis nursing fears of a devaluation.”
Alade has given assurances that monetary policy won’t change, Doyin Okupe, a spokesman for Jonathan, said in a mobile-phone text message.
“The initial fluctuations following the suspension have stabilised,” he said.
There’s “no indication whatsoever that a devaluation of the naira will occur,” Okupe said.
Sanusi could return if cleared of allegations, Jonathan said on state-owned NTA television on Monday, adding it was within his powers to remove the central bank chief.
The currency gained 0.1 per cent to N164.35 per dollar by 10:34am in Lagos, strengthening for a second day after the CBN auctioned $399.7m to lenders. It also sold dollars directly to banks, Kunle Ezun, an analyst at Ecobank Transnational Inc. in Lagos, said on the phone on Monday.
The bank’s Monetary Policy Committee has kept the benchmark interest rate at a record high of 12 per cent for more than two years, pushing inflation below 10 per cent. Consumer-price growth climbed above 15 per cent in the first half of 2010.
If the currency is devalued in July at the first MPC meeting under Godwin Emefiele, Jonathan’s nominee to replace Sanusi, consumer-price growth may climb to as high as 12 per cent by year-end, Mhango said in a February 21 note.
Source: Business News