Buhari’s stand on devaluation dash investors hope

Investors hoping that the Central Bank of Nigeria (CBN) will succumb to pressure to devalue the currency just got their hope dashed as the President Buhari declared his stance on the naira.

The president made his stance on the naira last week Wednesday, when he visited France, opposing further currency devaluation and endorsing the CBN policy of limiting foreign exchange trading.

“I don’t think it is healthy for us to get the naira devalued,” the president was quoted as saying in an interview with France 24 in Paris. But investors have totally disagreed.  A lot of them waiting on the sidelines for further naira devaluation after the CBN devalued the currency in November last year and a de facto in February 2015.

Foreign investors have shied away from investing in Nigerian assets as they wait to see how low the naira could go amid policy inertia and lack of clarity by the Muhammmadu Buhari government.

Nigeria has been hit hard by the fall of global crude prices, and the central bank has imposed increasingly strict foreign exchange rules to save reserves and avoid another round of devaluation.

The stringent restrictions have not gone down well with investors, who have called for a relaxation and devaluation.

CBN action has stabilized the naira at an average of 198.93 against the dollar since March. The naira has lost about 15 percent against the dollar over the last year, which has fueled inflation despite the CBN spending billions of dollars to bolster the currency.

Currency devaluations from Kazakhstan to China and Angola are heaping pressure on the central bank to relinquish control of exchange rate, leading analyst to forecast that the CBN would be eventually forced to devalue in the near future, especially with oil price falling below $50 per barrel.

But the CBN governor, Godwin Emefiele has consistently said the naira is “appropriately priced” and that the moves are aimed at curbing speculation.

Last week JP Morgan Chase & Co. said it would remove Nigeria from its influential emerging markets bond index, tracked by more than $200 billion, citing a lack of liquidity by CBN currency restrictions.

With no cabinet after almost four months in office and little clarity on economic policy, Buhari’s stance on the currency may lose him the support of investors concerned that he will limit private enterprise.

“The underlying logic of holding the exchange rate has been completely picked apart in the last five or so months,” Alan Cameron, an economist at Exotix Partners LLP in a phone interview by Bloomberg.

“The failure of the presidency to acknowledge this is surprising. From the indications so far, it doesn’t look like Buhari will pursue the orthodox economic program that most international investors were expecting,” said Cameron.

CBN which is battling to maintain macro stability has little room to support the economy as a rate cut from a record high of 13 percent would temper appetite for naira assets.

The MPC, which votes on the central bank’s benchmark rate but not its foreign-exchange policies, makes its next decision today. In a Bloomberg survey, 23 out of 26 economists expect it to hold the rate at 13 percent, a record high.

Josephine Okojie