Pressure mounts for Nigerian naira devaluation

Nigerian authorities are facing growing pressure to devalue the naira as the price of oil, its biggest source of foreign exchange, trades at the lowest level since 2004.

The Central Bank of Nigeria may revise its target for the naira by about 20 percent to 240 to 250 per dollar as oil continues its decline, Alan Cameron, London-based economist at Exotix Partners LLP, said in a research note. The currency was little changed at 199.29 per dollar at 8:05 a.m. Thursday in Lagos, the commercial capital.

“Cumbersome foreign-exchange restrictions are strangling economic growth,’’ John Ashbourne, London-based Africa economist at Capital Economics, said in note to clients on Wednesday. “The authorities will be forced to devalue the naira in the first half of 2016.”

Africa’s biggest economy needs more flexibility in setting monetary policy so it can use its foreign-currency reserves to support the poor population, International Monetary Fund Managing Director Christine Lagarde told Nigerian President Muhammadu Buhari on Tuesday. The Abuja-based central bank has held the naira at 197 to 199 per dollar since March as Governor Godwin Emefiele introduced trading curbs to conserve reserves and stem a rout after it fell to a record 206.32 in February.

Nigeria, with more than 170 million people, is struggling to cope with crude prices that have fallen almost 70 percent since their peak in June 2014 to below $40 a barrel. Brent crude for February delivery tumbled 3.4 percent to $33.07 by 7:15 a.m in London.

“The need for a devaluation of the naira has been obvious for some time, all the more so after the latest drop in oil prices,” Cameron said.

Oil accounts for two-thirds of government revenue and almost all exports. The slump is weighing on growth, which was forecast to ease to 3.2 percent last year, the slowest pace this century, according to a Bloomberg survey of economists.

 – Bloomberg [With assistance from James Batty].