CBN May Devalue Naira In 2021 – Bloomberg 

A survey by Bloomberg suggests that the Central Bank of Nigeria (CBN) may devalue the Nigerian Naira by 2020 due to dwindling foreign reserves and global decline in oil price.

Economists, financial analysts and other operatives in the financial sector were interviewed for the survey. 

In the report, 10 out of 19 respondents said the Naira would suffer devaluation, while five insisted that there would be a markdown in the second half of 2020.  

The remaining four suggested, however, that the CBN would maintain the current trend of the Naira till 2022 or 2023.

Fourteen respondents said the Naira was 10% overvalued against the US dollar, while 2 respondents said it was 20% overvalued.

According to the survey, 9 respondents said the Naira would drop by 10% or less, another 9 were of the opinion that it would drop by 10-20% or less. However, one respondent forecast a more than 20% drop.

The Naira has traded 360-365 and is currently pegged at 363 per dollar since it was devalued in 2017, as the CBN says the exchange rate is determined by the Nigerian market.

The Nigerian currency is less volatile among oil currencies, however, a 10% devaluation of the currency will push the Naira down to about 400/ dollar, while a 20% drop will see the Naira exchange for 450 to a dollar.

 According to reports, the Naira is one of the world’s most stable currencies, but it is under devaluation pressure. Consequently, the inflation rate which is already at 11.98% may worsen.  

Drop in Foreign Reserves

Nigeria’s external reserves dropped by $5.38bn between September 6, 2019 and February 6, 2020, figures published by the CBN show.

Foreign exchange reserves are assets held by a monetary authority in foreign currencies.

Comprising of foreign bank notes, deposits, bonds, treasury bills and other foreign government securities, the reserves are used to back liabilities and influence monetary policy.

Data obtained from the CBN on Monday showed that the reserves fell from $43.10bn in September 2019 to $37.72bn in February 2020.

Despite calls by financial experts for a unified currency exchange rate and a market driven forex market, the CBN continues to use FX reserves to support the market.

Why FX Reserves Are Important To Economy

The reserves help the country to meet external obligations with global partners and also absorb shocks from economic crisis.

Why Foreign Reserves Keep Falling

Several factors determine the upward and downward movements in reserves. In Nigeria, they have been mostly influenced by crude oil earnings, foreign inflows into the country and CBN interventions in the foreign exchange market.

Looking ahead, the reserves may even sink deeper due to the recent coronavirus outbreak in China and other countries and the attendant slowdown in the global economy.