Nigeria will have to devalue its currency at some stage, possibly by more than 15 percent, ratings agency Standard & Poor's said on Wednesday, though it saw the adjustments as likely to be gradual.
Investors have seen a devaluation of the naira as long overdue for Africa's largest economy and biggest oil exporter, which has been battered by the recent tumble in crude prices.
Following devaluations in November and February, authorities have focused recently on curbing access to hard currency on the official interbank market for importers of some goods, introducing stringent restrictions three weeks ago.
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But those measures just delay the inevitable, said Ravi Bhatia, director of sovereign ratings at Standard & Poor's.
"Another devaluation is inevitable... they will have no option but to devalue," said Bhatia at a media briefing.
Many investors are positioning for a devaluation of around 15 percent. Bhatia said that sounded "reasonable", though even more might be needed.
Non-deliverable forwards - derivatives used to hedge against future exchange rate moves - reflect expectations of currency weakening: six-month NDFs price the naira at 233 per dollar, some 18 percent weaker than the central bank pegged rate of 196.95 on Tuesday..
On Wednesday, the naira hit another record low of 242 against the dollar on the parallel market operated by dealers in bureaux de change, down 0.42 per cent from Tuesday. The naira has been hitting record lows on the parallel market since the latest central bank measures introduced three weeks ago.
Bhatia did not expect the adjustment to be done in one go.
"I think at this stage the plan is to move in increments, not to do a 'one big step' devaluation like they would in the old days," he said.
The central bank has said it is in no mood to devalue the naira, given the risks to inflation from a weaker currency, and that it will not be focusing on the thinly traded parallel market when determining the exchange rate.
Investors have also been nervous Nigeria might lose its place in the benchmark GBI-EM local currency debt index. Bhatia said this was a "real possibility", although he expected the government to adjust policy enough to maintain its membership.
"At some point they have to decide: do they want to go with their policies or do they want to stay in, and at the moment they are trying to do both, and it has worked," said Bhatia.
"But there are issues there, and it is a concern."
JPMorgan warned in June it could eject Nigeria from its benchmark index by year-end unless it restored liquidity to currency markets in a way that allowed foreign investors to transact with minimal hurdles.
In March, Standard & Poor's cut its rating on Nigeria to B+, changing its outlook to "stable".