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Possible Naira devaluation sends shockwaves in markets

07 November 2014, 18:23

Lagos - Uncertainty persists as a mass exodus of investors from the equity and bond markets shy away from local assets amid fears of an imminent currency devaluation.

Nigeria has had to contend with that setback, worsened by the undesired macroeconomic effects of a falling oil price.

“The Central Bank of Nigeria’s attempts to calm the market have fallen on deaf ears. In fact, it has created more uncertainty as a string of circulars seemingly unnerved participants in the interbank market, provoking a surge in demand as importers bring forward their commitments,” Rand Merchant Bank stated in its latest Global Markets update.

“Yesterday (Thursday) was a prime example of the interbank market’s inability to absorb the rising level of demand,” added the think-tank.

Also read: CBN to devalue the naira

The Naira spiked to 172 toward the close of the day, necessitating swift central bank intervention.

The unit eventually clawed its way back to 168.75 following the sale of an undisclosed amount of US dollars by the CBN.

However, the central bank is limited in its ability to directly influence the spot rate due to its dwindling international reserve position.

“We have long held that an oil event, be it a drop in the price or production, would demand an upward adjustment of the reference rate. While conditions are primed for a change, the upcoming presidential elections might impact the timing of monetary policy adjustments,” RMB stated.

The elections are due early next year.

Tensions have characterised the lead up to the polls.

– CAJ News

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