₦airaland Forum

Less than a month ago, when looking at Nigeria's deplorable economic and reserve situation, made far worse by the collapse in Nigerian oil exports courtesy of the Niger Delta Avengers, we predicted that "Nigeria Currency Devaluation Looms As FX Forwards Crash To Record Lows." Specifically we warned that "having urged investors "not to panic" last year, and seeing dollar reserves drying up rapidly earlier this year, recent "lies" about the nation's statistics have raised fears of a looming devaluation as FX forwards have crashed to 291 Naira to the dollar (current peg is 199)."

Specifically, the chart we were looking at was the one showing the dramatic divergence between the Naira spot rate and the 3M forwards which had blown out to record wides:

https://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/05/24/220160525_nigeria_1_0.png
Ealier today this prediction came true when Nigeria’s central bank finally threw in the towel when it announced it will allow the Naira exchange rate to be market-driven, setting the stage for a devaluation of the currency when the new system comes into effect June 20.

Instead of depleting its much needed (and virtually non-existent) foreign reserves, the Central Bank of Nigeria will select a group of around 10 primary dealers through which the naira will be traded. There will only be one exchange rate and the bank will intervene in the market “as the need arises,” Governor Godwin Emefiele told reporters in Abuja, the capital, Wednesday.
Cited by Bloomberg, Emefiele said that “we’re talking about an open, transparent two-way system. It’s intended we don’t have speculators and rent-seekers. I don’t expect that any other exchange rate will be recognized.”

As Bloomberg adds, Emefiele has faced calls for more than a year to devalue the currency, as other oil exporters from Russia to Kazakhstan and Angola have done, amid a rout in crude prices since mid-2014 to around $50 a barrel. Investment into Nigeria has shriveled as foreigners are put off by capital controls needed to defend the currency’s peg of 197-199 per dollar, while local businesses have struggled to import raw materials and equipment. Emefiele said last month the central bank would implement a “flexible” exchange-rate policy to help alleviate a dollar shortage that has strangled the economy. Nigeria's GDP contracted in the three months through March for the first time since 2004 and inflation accelerated to 15.6% in May, the highest rate in more than six years. It is about to explode much higher.

To be sure, the market reaction was instant: three-month non-deliverable naira forward contracts, already trading at a high premium to spot, surged as much as 9.5% to a record 333 per dollar after the announcement, suggesting traders expect the currency to trade around that level in the market, compared with the current official rate of 199.

https://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/06/04/20160615_NGN1_0.jpg
For now it remains to be seen just how the devaluation will take place: “It is something the market will want to see in operation to fully be able to take decisions concerning future investment, especially foreign investors,” Kunle Ezun, an analyst at Ecobank Transnational Inc., said by phone from Lagos. “The takeaway is that the central bank has not committed to any exchange rate.”

To some this was a favorable outcome: “It’s probably the best that the markets could have hoped for,” Ridle Markus, a Johannesburg-based analyst at Barclays’ Africa unit, said by phone. “It certainly seems like it will be a normal, free-floating currency. That would be positive.”

To others, such as Nigeria's 175 million-strong population, this means that Nigeria is about become the next Venezuela, with imminent hyperinflation on deck, as prices soar to keep up with the collapse in the spot rate. The naira will probably trade in a range of 280 to 350 against the dollar after the central bank implements its decision, analysts at Johannesburg-based Rand Merchant Bank said in a note on Wednesday before the announcement.

Of course, what is bad news for the population is great news for capital markets, and since the central bank will have more reserves left now that primary dealers will be left holding the bag on FX trading (and thus devaluing the naira with double digit precision), it means that Nigeria will have more dollars left to pay off its liabilities. Immediately Nigeria’s 2023 dollar bonds gained most since 2014, with the yield falling 55 basis points to 7.1 percent, and stocks surged 3.1 percent.

The devaluation as a bullish case was best described by Old Mutual Global Investors, who said they would look to buy Nigerian bonds denominated in USD after Nigerian central bank said it will allow the naira exchange rate to be market-driven, John Peta, head of emerging market debt, says in interview. It added that with a free float, "the central bank can service the external debt without using USD reserves." It cautioned however that is would wait for future developments before getting involved in new market-driven regime for naira, and concluded that the decision to allow naira rate to be market-driven may play in favor of an inclusion of Nigeria in JP Morgan index again; which may explain why stocks surged today.

On the other hand, stocks always surge as a country is about to tumble into the hyperinflationary abyss. The question is whether the nominal price increase will keep up with the all too real collapse in the Naira's purchasing power which is about to slam Nigeria. If Venezuela is any indication, the answer is no.

Finally, for those wondering how to trade here, the answer may once again revolve around the Niger Delta Advisors: if Nigeria is unable to export more oil due to supply disruptions and thus inject much needed dollars into its Treasury, the country's financial situation wil get even more dire, leading to an acceleration in the naira's devaluation. On the other hand should Nigeria's government be successful in taming its offshore funded militants, the naira may be a buy, however that trade would be offset by a short in oil as the world's most acute crude supply disruption comes to an end.

In any case, watch out for unsolicited Nigerian emails from financially erudite locals asking you to buy stocks, bonds, or any other asset class. Those will result in guaranteed losses.

https://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/06/04/nigeria%20cafe.jpg

http://www.zerohedge.com/news/2016-06-15/nigeria-hyperinflation-looms-central-bank-throws-towel-devalues-currency

hundredhundred:
Buhaahaa My dog is getting more foolish. Waste whose time? Buhahahahahaa. Your dead parents did a good job in you guys, they made you believe all your problems are caused by Yorubas, its really a disgrace.

saintandsinnerz:
Really, bro, I'm not angry but it beats my imagination that an adult who claims to be mentally ok can descend so low. If you go through the pages you will see where he was being summoned by one Omenka to come and spread hate messages and he obliged him. The worst part is that the article they are now using to abuse the Igbos centred on Buhari's regime, but Omenka, Modath, Hundredhundred and other tribal bigots and ethnic supremacists ignored it and went to the last small part where the Pastor said that Biafra is dead and picked on it just because it comfortably suits into their Igbophobic disposition!

hundredhundred:
Yes, she is a certified mumu.

Twistaray:
I thought you don't reside in Nigeria presently?

Cheiiii ibo man don scam on NL

Nna why una too like to dey make mouth sef!

princey83:
I am Yoruba, but I wholeheartedly support biafra or division of Nigeria. The British joined 3 different nations together. can they themselves live with the Germans and french in the same country?

hundredhunndred:
My dog is now angry, let me chain you down before you bite your sister.

hundredhunndred:
This pathetic kid is still crying. It seems my dog need food

Twistaray:
At the bolded, bro, are you kidding me.
Now tell me you are just teasing me


Bruhahahahahahahahahaha

hundredhunndred:
Yes, I know he is retarded before his painful death. You are pained and cant stop quoting me, you are now my dog.

saintandsinnerz:
I never wanted to reply you because I concluded you are not alright upstairs judging by your tribal diatribe all over this thread. However, I will do this time. Let me tell you Mr. Bigot, you are fool really! Just look at yourself, are you a kid? Look at the kind of rubbish you are spewing all over the place. Are not ashamed that at your age that people are calling you to come and spread tribal hatred on their behalf? You are an example of a failed parenthood! You should bury your head in shame for being such a douche bag at your age. Your mates are busy making money and bettering their lives and you are here spreading hate messages against an ethnic group. Your kind is the worst of the human species! Well, you can continue spreading your hate messages since it is what makes you feel right about your troubled life.

Twistaray:


Really,the way you go about insulting the word " bravery" is amazing.

Yeah yeah yeah..

Brave in :

• Ultimatum when threatened.
• Fasting and prayer when attacked by fulani
• Brave in psyches.
• Brave in one millionaire match protest and getting killed.

Oh yeah. I love una bravery no be small

Yeah right! Brave my bombom

hundredhunndred:
Ode, you are contradicting yourself. Why disturbing my mentions when you not taking me serious, you are pained. Lmaooo

hundredhunndred:
[s][/s]

You cant be serious and cant stop quoting me. You see why stupidity should no be transferred to children by there parents, you are pained. Are you not going to blame Yorubas anymore for your stupidity?

Twistaray:
Akpu kills

It's suffocates..amala is soft easy to swallow now I am telling you cos I almost got killed by akpu last night

Nna mehn, how do you people survive that killer on your throat?

hundredhunndred:
Stop talking like your late father, cos only fools and cursed nitwit talk this way, the only thing you have been spewing since page 1 is Igbo, oluwole and OCD. Say something new so we can take you serious.

hundredhunndred:
Why disturbing my mentions with your stupidity? Is it because you lack parental care and love. Are you going to also blame Yorubas for the death of your father?

hundredhunndred:
Stop talking like your late father, cos only fools and cursed nitwit talk this way, the only thing you have been spewing since page 1 is Igbo, oluwole and OCD. Say something new so we can take you serious.

Twistaray:
It taste like this :

hundredhunndred:
Lmaoo. I should go to bed when its just 6.47pm . Your flat akpu packed brain needs reformatting, continue to disgrace your family online.

Twistaray:
Yeah! Yeah! Yeah!!! One in akpu and Okro soup, one in one traditional/aposhe outfit..


One on NLand..

hundredhunndred:
Sorry, you are not making sense and can never make sense till death.

Twistaray:
I love your strong spirit, akpu as really helped you a lot


Why on earth would this be seen among igbo race??


I have listen severally to igbo songs.. Which Whenever they to talk about igbo people, they will only mention ANAMBRA, IMO and ENUGU... Am



The worst part is the Gospel singers are also doing the same.... You will be listening to igbo gospel music , they will be praying to God ""Gozierem ndi onitsha, Gozierem ndi IMO, ENUGU na ANAMBRA state nine" "

WHY are they disregarding us ===EBONYI and ABIA


HAVENT WE CONTRIBUTED TO THE DEVELOPMENT OF IGBO RACE

https://www.nairaland.com/2283818/why-these-two-igbo-states

At the bolded above.

I can see how united ibos are.

Ain't I right!

Are we good?

hundredhunndred:
[s][/s]

Cannibal, You are just pouring smelly spit, they are mumus as you have just told the world. Deal with it.

Twistaray:
Yes. You are right because you said so bro!

I belief you,is that all?

Up bradurad mhen

hundredhunndred:
[s][/s]

You just told the world that they are mumu, why trying to change the truth? Only mumus give birth to another mumu, you are a disgrace bro.

ruggedchap:
See what I mean, you are still replying me - mumu

See what I mean, you are still replying me - My parents at home are mumu grin