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CBN ‘may devalue naira in six months’ – The Cable

HomeNewsCBN ‘may devalue naira in six months’ – The Cable
13
Feb
CBN ‘may devalue naira in six months’ – The Cable
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Lukman Otunuga, a macroeconomics expert and research analyst at FXTM, says the Central Bank of Nigeria (CBN) may devalue the naira to 400 against the dollar on the official side.

In an interview with TheCable, Otunuga said the situation might make the Nigerian currency rise to N600 at the parallel market.

Otunuga, who forecast the devaluation of the naira in 2016, said the apex bank should conserve rising foreign reserves, while letting the naira depreciate to N400 per dollar.

On the nature of Nigeria’s inflation, he said the country is dealing with cost-push inflation.

“In December, it was 18.55 percent. The problem behind this is that we have a situation where producers do not have the ability to get dollars at the official rate,” he said.

“So they use the black market and by using the black market, they push the cost back to consumers.

“This is what is happening, and this is almost very hard for the CBN to tame. So in three to six months, there is a very string possibility of the Central Bank of Nigeria devaluing the naira, yet again, from 305 to probably 350 to 400 to increase liquidity and attract investors.

“In this situation, the best is for the Central Bank of Nigeria (CBN) to hold reserves. The major thing is that they are actually buying, keeping the naira artificially at 305, this has created scarcity. I think it is best to let the reserves grow, and effectively devalue the naira.

“If they do that, it has the ability to pushing the parallel market further to 550 to 600. You have to keep in mind, that the main reason why the parallel market exploded into uncharted territories was because we had recession fears, hike in US rates, and weak oil.”

He said the optimism in the system, with positive forecast from the World Bank and the International Monetary Fund (IMF) about the economy, will minimise the effect of the imminent devaluation.

Otunuga said Nigerians will understand that the intent is to attract foreign direct investment and solve liquidity problems.


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