CBN may devalue Naira next year

There are indications that the Central Bank of Nigeria (CBN) may devalue the naira next year after President Muhammadu Buhari hinted for the first time that he would accept a devaluation of the naira, spurring speculation it may take place early next year when the local market reopens for trading.

The Central Bank of Nigeria(CBN) is fine-tuning the management of foreign exchange and would introduce some flexibility that would encourage additional inflows, Buhari told lawmakers in Abuja, on Tuesday as he presented the country’s 2016 budget.

“I am aware of the problems many Nigerians currently have in accessing foreign exchange for their various purposes,” the president said.

“These are clearly due to the current inadequacies in the supply of foreign exchange. We are carefully assessing our exchange-rate regime, keeping in mind our willingness to attract foreign investors, but at the same time managing and controlling inflation to a level that won’t harm average Nigerians.

“To the investors, business owners and industrialists, we are aware of your pain,” Buhari said. “To the farmers, traders and entrepreneurs, we also hear you. The status quo cannot continue.”

The currency of Africa’s biggest oil producer and economy has been all but fixed at N197-N199 per dollar since early March, with the central bank governor, Godwin Emefiele, curbing foreign-exchange trading and introducing import controls after the naira fell to a record low as crude prices plunged.

That’s caused investors including Aberdeen Asset Management Plc and Morgan Stanley to sell naira bonds and stocks in anticipation of a devaluation, which would cause losses on their holdings, and hindered the country’s growth.

The president’s change of tone means a devaluation and loosening of currency-trading restrictions may take place about January 4, when the central bank reopens the interbank market, which has been shut since Dec. 18 for the Christmas holidays, according to Razia Khan, the London-based head of Africa research at Standard Chartered Plc, which predicts the naira will weaken to N220 per dollar in the first quarter and N228 by the end of 2016.

“There’s recognition that the current system isn’t working and they need to move to something better,” Khan said by phone.