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Sunday, February 5, 2023

CBN may devalue naira massively after 2023 elections as gap between black market, official rate widens

The Central Bank of Nigeria (CBN) is likely to devalue the naira after elections in February by the steepest margin in six years to align it with market perceptions.

This is according to a poll conducted by Bloomberg, which is one of the world leading business and markets news platform.

The news agency said that of the 13 participants in its poll, 11 expected the CBN to devalue the naira after the election while the remaining two predicted that the apex bank would continue with a gradual depreciation of the currency that started with the adoption of the more flexible NAFEX, also known as the investors and exporters exchange rate, last year.

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The feelings from the respondents is coming amid a huge exchange rate gap between the official market and parallel markets by almost 77 percent or N330.

The report quoted head of research at SBM Intelligence, Ikemesit Effiong, as saying: “There will be a major devaluation either on President Muhammadu Buhari’s way out or in the first few months of the new administration.”

The median estimate is for the expected devaluation to weaken the naira by as much as a fifth, which would take the local currency to N533 per dollar. Last month, Bank of America Corp. Economist Tatonga Rusike gave a similar prediction. The median of 10 participants in the Bloomberg poll sees the fair value of the local unit at 583 per dollar.

Naira forward contracts are pricing in a depreciation of about one third over the next year. A markdown between 20 per cent and 33 per cent would be the largest since 2016. The naira has weakened 4.5 percent against the greenback this year.

A devaluation would likely push up annual inflation that’s at a 17-year high of 21.1 percent — although it’s already been impacted by the weaker parallel market rate — and cause a one-off increase in the ratio of public debt to gross domestic product, said Mark Bohlund, the senior credit research analyst at REDD Intelligence.

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Meanwhile, Nigerian banks have announced changes to their operating hours in order to assist Nigerians holding soon-to-expire Naira currencies.

The banks have already announced that they have delivered notifications of their working hours via their social media channels and customers’ emails.

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