Nigeria's Naira Falls To A Record Low As Rate Decision Looms

Nigeria's naira weakened to a record low a day before the central bank decides on interest and exchange rates and as Morgan Stanley and Renaissance Capital forecast further declines for the currency battered by low oil prices.

The naira fell 3 percent, the most in a week, to 190.45 against the dollar before paring losses to trade at 190.30 as of 12:03 p.m. in Lagos. It will probably drop to 220 by the end of 2015, according to Yvonne Mhango, a sub-Saharan Africa economist for Renaissance Capital.

“We see no respite over the short term,” Johannesburg-based Mhango said in a note to clients. The reversal of inflows and low foreign-exchange reserves imply “a sizable naira depreciation is coming,” she said.

Policy makers in Nigeria, which relies on crude for 90 percent of export earnings and 70 percent of revenue, have reacted to oil prices more than halving since June with spending cuts and an increase in interest rates to a record 13 percent. The naira has still depreciated 13 percent in the past three months, the most among 24 African currencies tracked by Bloomberg.

The currency may weaken beyond 200 per dollar in the interbank market this year, while the central bank may devalue the official rate in auctions by 5 percent to 10 percent, Johannesburg-based Morgan Stanley analysts Michael Kafe and Andrea Masia said in an e-mailed note.

The central bank will keep rates at 13 percent, according to nine out of 12 analysts surveyed by Bloomberg. Morgan Stanley and Renaissance Capital predict a 100 basis points increase to 14 percent, while HSBC Plc estimates rates will rise to 13.5 percent.

BLOOMBERG