Nigeria’s Naira Falls to Record Low

Just a day before the central bank of Nigeria was set to decide on interest and exchange rates, Nigeria’s currency, the naira, spiraled to a record 6 year-low. This dip has occurred in the wake of financial powerhouses – Morgan Stanley and Renaissance Capital – forecasting a decline for the currency. Aggravating the situation further was dangerously low oil prices.

Just a day before the central bank of Nigeria was set to decide on interest and exchange rates, Nigeria’s currency, the naira, spiraled to a record 6 year-low. This dip has occurred in the wake of financial powerhouses – Morgan Stanley and Renaissance Capital – forecasting a decline for the currency. Aggravating the situation further was dangerously low oil prices.

The naira fell to about 190 against the mighty dollar. That amounts to a drop of nearly 3%, the most in a week. This was before cutting back on trading losses, which occurred at 190.30. Experts have speculated that the Naira will probably drop to 220 by the end of fiscal year, 2015. A reputed sub-Saharan Africa economist, working for Renaissance Capital, stated this recently.

The decision by the Organization of Petroleum Exporting Countries to leave output targets unchanged after the quickest oil slump since the 2007 global recession has greatly increased risks to Nigeria’s economic outlook, impacting the nation adversely as Nigeria is Africa’s largest oil producer and exporter.

Financial Trouble Looming Large Over Nigeria

In a note to all his clients, Johannesburg-based Mhango said that he saw no relief to the dwindling currency in the current year. He indicated that the reversal of cash inflow and a subsequent low foreign-exchange reserve would lead to a sizable, uncontrolled depreciation of the nation’s currency.

Nigeria’s policy and decision makers, who rely on crude oil for an estimated whopping 90% of export earnings and 70% of revenue, have negatively reacted to oil prices that have more than halved since June of 2014. This has resulted in massive spending cuts and corresponding increases in local interest rates to an unprecedented 13 percent. The naira has bottomed out by a whopping 13% in the past three months alone, which is the most among 24 African currencies tracked by major financial institutions.

Nothing Substantial To Make the Economic Future Seem Welcoming

Financial experts, local and foreign, have predicted that the currency could weaken beyond 200 naira per US dollar within the interbank market (the financial system and trading of currencies among banks and financial institutions) this year alone. There is also widespread speculation that central bank of Nigeria will devalue the official currency rate by 5 to 10%. Analysts at Johannesburg-based Morgan Stanley are highly pessimistic about the future of the African nation’s currency and do not see any respite throughout 2015, even following well into 2016.

The Central Bank is keen on keeping their rates at 13%. However, what can happen to the already struggling Nigerian economy is largely unknown. As reported by nine out of 12 financial analysts. Morgan Stanley and Renaissance Capital have both predicted an approximate 100 basis point interest rate increase to 14%. HSBC, on the other hand, has estimated that currency rates will rise to 13.5%.