The Central Bank of Nigeria (CBN) would need to adjust the naira band lower in the next couple of weeks to put the currency into equilibrium as the strength of the dollar begins to squeeze some local consumer goods manufacturers.
Analysts say dollar strength is different from naira weakness and becoming such a global reality which the CBN cannot decouple the country from without the necessary adjustments.
“The CBN will have a hard look at this at the next MPC meeting,” said Bismarck Rewane, CEO of consulting firm, Financial Derivatives Company (FDC), at the FBN Capital investment conference held in Lagos yesterday.
“If you don’t adjust the currency lower and quickly it will hurt… and you have to do it anyway.The CBN cannot coast all through to February, it needs to act dramatically.”
According to Rewane, there is need for a unification of all FX rates in the economy (such as the official, interbank and BDC), and a movement to the interbank market, with the CBN left to only intervene in the markets when necessary.
Nigeria’s currency has come under pressure recently, as oil prices retreated 28 percent since June.
The naira weakened slightly on the interbank market on Tuesday and closed at N168.40 to the dollar, compared with N168.20 the previous day, due to strong demand for dollars from foreign investors.
Traders said the CBN had intervened in the market to buy naira, providing some support, but not enough to lift the currency.
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Brent for December settlement fell 68 cents, or 0.8 percent, to $81.66 a barrel, on the London-based ICE Futures Europe exchange at 10:28 a.m. in New York. Futures slipped to $81.23, the lowest level since October 2010.
“We expect action from the CBN and assume an adjustment of the mid-point in two weeks,” said Gregory Kronsten, Head of Macroeconomic and Fixed Income Research, FBN Capital.
“Offshore investors minds are made up that the naira is going to N170 per dollar. These offshore guys need certainty from the CBN,” Kronsten said.
A 5 – 8 percent adjustment to the naira by the CBN will bring equilibrium to the FX markets and allow interest rates to come down said Rewane.
This is especially necessary as most global currencies have adjusted lower against the dollar, leaving Nigerian manufacturers at a dis-advantage, compared to West African economies with currencies such as the CFA franc pegged to the Euro.
“The West African markets for companies such as Nestle Nigeria, has evaporated by the fall in the Euro –CFA exchange rate,” Rewane said.
Nestle Nigeria Plc., recently reported only a 5.01 percent growth in third quarter revenue of N35.465bn compared to second quarter figure of N33.775bn.
Falling oil prices and large scale oil theft is a risk for Nigeria’s macro – economy for which adjustments have to be made, said Anil Gupta, a professor of strategy, globalisation and entrepreneurship, at the Smith school of business at the University of Maryland, USA.
“The commodity super-cycle may be over,” Gupta said.
“Total oil consumption in rich economies is going down and supply is rising faster than demand as a result of shale oil and new technologies that drive efficiencies.”
For Rewane, what the CBN would prefer to do, is irrelevant at this moment.
“What you see is what you get. What you don’t see coming is what gets you at MPC meetings,” Rewane said
PATRICK ATUANYA & JOSEPHINE OKOJIE
