The Central Bank of Nigeria, CBN, will once more devalue the naira towards the end of the year, predicts David Cowan, managing director, Citi Bank. According to him, the value of the country’s external reserves, which stood at $29.031 billion as at June 22, is too low to sustain the defense of the currency. Cowan stated at the Euro Finance conference in Lagos that, “What the central bank is battling is to the extent and how much the naira has to adjust. At the moment, the central bank thinks that the naira has adjusted enough, while market doesn’t think the naira has adjusted enough,” he said.

Cowan believes the apex bank does not want the foreign exchange, forex, reserves to decline further than its present value. “I still think we are going to see an adjustment to the naira. The fiscal and current account deficit tells us that a lack of real return and I think it is also in the bottom-line they haven’t got the reserves in defending the naira. But there is still a long period in this standoff, which would last maybe three four months or longer. Whatever happens, I still think that the exchange rate would end up around N220/$1 late 2015,” he said.

Cowan said though Nigeria built up a lot of savings for a rainy day but the federal government ran those savings down in the last years. Consequently, he explained that when the country was hit by an oil price shock, it didn’t have much money for a more gradual adjustment; hence the naira came under pressure. “The long term solution is to let the naira adjust. If you let the naira adjust, it will increase the amount of revenue going to the government, which would help it, control its fiscal spending. Yes it would push inflation in the short term but hopefully that should also drive a production response from the agriculture sector,” he said.