By Ademola Alawiye with Agency Reports

Renaissance Capital on Thursday said that the Nigerian currency had a 40 per cent probability of being devalued to N155 per dollar in 2012 due to fall in oil prices and increase in investments in roads and rails by government.

Bloomberg quoted a report by a Johannesburg-based economist at Renaissance, Ms. Yvonne Mhango, as saying, “The weakening global economic outlook implies there is downside risk to the oil price, so we are of the view that foreign reserves are likely to remain flat until the end of 2011 and the scope for a strong recovery in reserves in 2012 is now smaller.”

The report added that the nation’s infrastructure programme implied that demand for imported capital equipment and machinery was likely to rise over the short-to-medium term.

The Central Bank of Nigeria has been using foreign-currency reserves to keep the naira within a three percentage-point band above or below N150 per dollar at its bi-weekly auctions to help check inflation. It has failed to meet lenders’ demand for foreign currency at 15 straight auctions.

The naira, which weakened by 1.2 per cent in August, was 0.1 per cent stronger at the inter-bank market, trading at N154.65 per dollar in Lagos on Thursday, according to data compiled by Bloomberg.

According to data from the CBN, the nation’s foreign-currency reserves have slid by 11 per cent to $32.9bn in the year to August 26, 2011. The country relies on crude exports for 95 per cent of its foreign-exchange earnings.

Mhango added, “Contrary to our initial expectation of a steady accretion of foreign reserves on the back of the sharp increase in the oil price in the first quarter of 2011 and a sustained high price thereafter, foreign reserves have essentially moved sideways.

“Nigeria’s heavy import dependence explains the country’s high forex outflows. The country’s high import dependence explains why the exchange rate is often the bellwether for Nigeria’s economic health.”

The Minister of Finance, Dr. Ngozi Okonjo-Iweala, said recently that her priority would be to find ways to meet President Goodluck Jonathan’s goals of increasing investment in power plants, roads and agriculture to help diversify the economy and create jobs.

The CBN Governor, Mr. Lamido Sanusi, had said that Nigeria needed fiscal discipline to help keep the inflation rate below 10 per cent, after it dropped to 9.4 per cent in July, from 10.2 per cent a month earlier.

Source: Punch