The drastic appreciation of the naira must be supported with devaluation or proper free-float of the local currency, else, the gain will only be a stop-gap, Bloomberg is reporting.
Quoting JP Morgan Chase and Renaissance Capital, Bloomberg said until Nigeria “devalues or makes a clear switch to a free-floating currency”, it “will struggle to lure back foreign investors”.
Forwards suggest more declines to come, investors are shunning naira assets, and a web of alternative exchange rates only adds to the confusion over the currency’s real value.
John Ashbourne of London-based Capital Economics told the revered newspaper that the number of exchange rates in the country “further complicates” an already convoluted system.
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Bloomberg data shows that naira forward contracts maturing in three months trade at 354 per dollar, suggesting the currency will drop 11 percent in the period. Naira six-month contracts are quoted at 381.
In the past week, the Central Bank of Nigeria (CBN) had taken a number of policy actions which has led to a record appreciation of the naira from 520 to 450.
The bank has pumped $371 million, $230 million and $180 million into the forex market in the past seven days, but investors want more in devaluation or free-float, owing to the fact that the currency remains 30 percent weaker on the black market than on the official one.
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