Following suggestions that the Central Bank of Nigeria (CBN) would move towards a flexible exchange rate regime in mid-2022, there is increasing evidence that a naira devaluation could be in the works, according to analysts at Tellimer Research.
The naira (NGN) has displayed significant volatility over the past couple of weeks, with the currency widening slightly in the I&E window from its de facto peg of N411/US$ to N413/US$ from September to October, before temporarily spiking above N420/US$ at the end of the month.
Moreover, Tellimer says there has been increasing divergence between the daily high and low quotes in the I&E window, with high quotes rising above N450/US$ on the past five consecutive trading days.
“While not unprecedented, both of these phenomena were seen ahead of the February 2021 devaluation, which could suggest the CBN is testing the waters for another devaluation in the coming weeks or months,” Tellimer said.
“We would welcome a devaluation of NGN, but continue to believe that the only sustainable solution to Nigeria’s endemic FX issues is to devalue the currency and allow it to float.”