Naira devaluation looms in spite of Buhari’s opposition

Traders increased bets that Nigeria will allow the naira to weaken after the central bank eased some capital controls and President Muhammadu Buhari, who opposes devaluation, extended his sick leave in the U.K.

Forward contracts rose to the highest level since November after the Central Bank of Nigeria said it would “increase the efficiency of the foreign-exchange market” and make hard currency available to Nigerians needing to fund business trips and overseas school and medical bills. The regulator also announced the sale of $500 million of dollar forwards.

Buhari is in London receiving treatment for an unspecified condition after traveling there for medical tests on Jan. 19. The 74-year-old, who has likened a depreciation of the naira to “murder,” handed power to his vice president, Yemi Osinbajo, before departing and was initially scheduled to return on Feb. 5. Buhari was also out the country with Osinbajo in charge when Nigeria allowed its currency to weaken in mid-2016.

“Tests showed he needed a longer period of rest, necessitating the president staying longer than originally planned,” presidential spokesman Femi Adesina said in an e-mailed statement Tuesday, without explaining what Buhari’s illness is or when he’ll be back. “There is no cause for worry.”

Buhari’s absence is heightening concern about government paralysis at a time when the oil-dependent economy is in recession and the stock market is near a 10-month low. Still, investors are betting that a more flexible currency regime is at hand.

Naira forward contracts maturing in three months rose 3.9 percent to 371 against the dollar on Tuesday, the highest close since Nov. 11 and suggesting the currency will depreciate about 15 percent in that period from 315.5. Six-month contracts climbed to 396.5, while the black-rate market rate strengthened to 515 on Wednesday from 520 earlier this week.

The Central Bank of Nigeria said Monday it would sell dollars to people needing to pay for medical and school fees abroad at a rate of as much as 20 percent above the spot price, or roughly 370 against the greenback.

Forward Sales
The measures were part of “efforts to increase the availability of foreign exchange in order to ease the difficulties encountered by Nigerians,” the Abuja-based regulator said.

The central bank this week sold $371 million of 30-day and 60-day forwards to banks, almost $130 million less than it offered. The exchange rates ranged from 315 naira to 360 naira per dollar.

This week’s moves are positive for foreign investors and are probably aimed at accessing funding from the World Bank, Ayomide Mejabi, an analyst at the Nigerian unit of Standard Bank Group Ltd., said in a note to clients.

“Full liberalization is still some way off” but it may be “one of a few steps on the road to a lot more flexibility” and helping to clear a $5.5 billion backlog of demand for dollars, he said.

Nigeria’s Senate President Bukola Saraki visited Buhari at the country’s High Commission in London twice last week, according to the presidency, sparking concern about the severity of his condition. The uncertainty reminds Nigerians of President Umaru Musa Yar’Adua, who flew to Saudi Arabia for medical treatment in November 2009 and was never seen in public again, dying six months later.

To avoid a power vacuum similar to the one Yar’Adua’s absence created, Buhari got lawmakers’ approval to transfer all executive powers to his deputy, Yemi Osinbajo, before leaving for the U.K.