Naira on Devaluation Path as Nigeria Bid Fails: Chart of the Day

Nigeria is poised to devalue the naira after central bank efforts failed to stem the currency’s plunge to a record versus the dollar, according to Exotix Partners LLP.

The CHART OF THE DAY shows that the rate at which the naira trades in the interbank market weakened to the widest gap on record against the official auction value this week, prompting the Central Bank of Nigeria to use dwindling reserves to maintain its target range for the currency. That isn’t sustainable, according to Stuart Culverhouse, chief economist at Exotix, which specializes in frontier-market investments.

“It’s just a question of waiting for devaluation,” Culverhouse said by phone from London on Wednesday. “The overwhelming signal” is that the official rate would have to be adjusted closer to prices in the market, he said.

The naira, Africa’s worst-performing currency this year, slumped to more than 200 per dollar for the first time on Tuesday after the West African nation postponed elections scheduled for Feb. 14 by six weeks. Investors are delaying decisions to commit money to Nigeria amid escalating violence by the Islamist group Boko Haram in the country’s northeastern region and the collapse in crude prices, which is cutting government revenue for Africa’s biggest oil producer.

Nigeria’s central bank depleted foreign-exchange reserves to a three-year low in a bid to defend the naira with dollar sales. In November, policy makers weakened the midpoint of the official exchange rate, which is set at twice-weekly central bank currency auctions, to 168 per dollar from 155 and raised the benchmark borrowing cost to a record 13 percent to stem losses in the currency. The interbank rate is the price at which banks buy and sell the currency.

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