Moody’s says CBN naira devaluation will help the economy – The Cable

Moody’s, one of the big-three credit rating agencies in the world, says the Central Bank of Nigeria (CBN) devaluation of the naira is a positive step in building the economy.

Moody’s made the disclosure in a report released on Friday, entitled ‘Government of Nigeria: FAQ on Credit Implications of Naira Depreciation, Low Oil Price and Broader Economic Challenges’.

Godwin Emefiele, governor of the CBN, and President Muhammadu Buhari had initially insisted that the naira would not be devalued, but eventually decided to let the local currency float, which effectively devalued the naira.

“Overall, Moody’s views the recent devaluation of the naira as credit positive. The new system should enable the naira to better absorb external shocks over time, and dollar availability should gradually increase,” the report read.

“However, the depreciation implies a material loss in purchasing power given import-price inflation. Moody’s expects inflation to accelerate to 18% by year’s end, before falling to an average of 12.5% in 2017 (based on the recent 2 percentage point hike in the central bank’s policy rate to 14%).

“Moreover, the fiscal benefit of the depreciation and the current oil price (which is above the budgeted oil price) exceeds the loss in oil output.

“States and local governments will benefit from the naira depreciation, offsetting the negative impact on oil production from the recent attacks in the Niger Delta. Moody’s expects authorities to reduce spending if revenues underperform.”