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Is The Nigeria Naira Overvalued?

By Ayomiku Akindele
23 July 2015   |   11:18 pm
Standard & Poor’s(S&P), a global ratings agency has said that Nigeria, at some stage will have to devalue its currency possibly by more than 15 per cent. Director of Sovereign Ratings at Standard & Poor’s, Ravi Bhatia, was quoted by Reuters to have said: “Another devaluation is inevitable... they will have no option but to…
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Standard & Poor’s(S&P), a global ratings agency has said that Nigeria, at some stage will have to devalue its currency possibly by more than 15 per cent. Director of Sovereign Ratings at Standard & Poor’s, Ravi Bhatia, was quoted by Reuters to have said: “Another devaluation is inevitable… they will have no option but to devalue.”

As seen in the sharp drop in oil prices over the last 12 months, some investors suggest that a devaluation of the naira is long overdue. Following devaluations in November and February and given the widening gap between the exchange rate in the inter-bank and parallel markets, another devaluation of the Naira is a huge possibility at this week’s Monetary Policy Meeting.

Speaking to CNBC Africa on the possibility of the devaluation at this week’s MPC meeting, Temitope Oshikoya, CEO at Nextnomics says the MPC should do nothing. The Country has earlier devalued by 9% and the inflation rate is at 9%. Out of 22%, we have about 13% and in a sense, it will be advisable not to do anything about the real exchange rate. We should watch what the Central Bank of Nigeria will do about this current devaluation and the impact on the economy.

Oshikoya supports the CBN’s FX restrictions and believes that the foreign imports restrictions should have been part of a coordinated attempt that should have been done earlier and before the oil prices declined.

He advises that Nigeria be careful in allowing foreign portfolio investors to dictate monetary policy to the Central Bank or allowing the parallel market dictate the foreign exchange rate for the Naira.

He concludes by saying the Central Bank needs to be “more disciplined in terms of surveillance”.

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