Another devaluation imminent for Naira despite forwards ease on oil

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The Nigerian naira’s recovery in the forwards market may be deceptive. The currency is destined to weaken, however long policy makers hold out, Bloomberg reports.

Six-month contracts declined to their lowest level since September last week as crude oil, Nigeria’s top export, advanced about 20 percent after OPEC agreed a production cut in November. A drop in forwards would typically be a sign of growing confidence in a nation’s economy and currency, but this does not appear to be the case.

Even as oil prices advance, Standard Chartered Plc and London-based Duet Asset Management say the nation needs to devalue the naira and loosen capital controls. With dollars becoming scarcer and the economy on the brink of its first full-year recession since 1991, Nigerian businesses are being forced into the black market. There, each dollar costs 493 naira, almost 60 percent more than the official rate.

“Oil’s rise isn’t enough to eliminate the need for a change,” Ayodele Salami, who oversees around $450 million of African stocks as chief investment officer at Duet, said by telephone. Nigeria won’t attract inflows until it weakens its currency, he said.