24 June 2015, Lagos – The Africa Economist/Managing Director, Citi Bank, Mr. David Cowan has predicted a further devaluation of the naira, arguing that the value of the country’s external reserves is too low to sustain the defence of the currency.
He stated this yesterday at the EuroFinance conference in Lagos.
Cowen said: “What the central bank is battling is to the extent and how much the naira has to adjust. At the moment, the central bank thinks that the naira has adjusted enough, while market doesn’t think the naira has adjusted enough.”
He believes the apex bank does not want the forex reserves to decline further than its present value. External reserves stood a $29.031 billion as at Monday.
He added: “I still think we are going to see an adjustment to the naira. The fiscal and current account deficit tells us that a lack of real return and I think it is also in the bottom-line they haven’t got the reserves in defending the naira. But there is still a long period in this stand-off which would last maybe three four months or longer.
“Whatever happens, I still think that the exchange rate would end up around N220/$1 late 2015, he added.
Responding to questions on the Nigerian economy, on the sidelines of the event, he said: “Nigeria built up a lot of savings for a rainy day, and then it ran those savings down in the last years. When it got hit by an oil price shock, it doesn’t have much money that allows it to make a more gradual adjustment that is why the naira came under pressure.”
Furthermore, he said: “The long term solution is to let the naira adjust. If you let the naira adjust, it will increase the amount of revenue going to the government which would help it control its fiscal spending. Yes it would push inflation in the short term but hopefully that should also drive a production response from the agriculture sector.”
He also urged the new government to focus on power, pointing out that electricity has the potential to transform this country.