President Muhammadu Buhari has given the Central Bank of Nigeria (CBN) the go-ahead to introduce flexibility in the naira’s exchange rate, his spokesman said yesterday. “The President is opposed to devaluing the naira, he has said so repeatedly,” the Senior Special Assistant (Media & Publicity) to the President, Garba Shehu, said in an interview on the Nigerian Television Authority (NTA).
“He has given them leeway to introduce what he has called ‘flexibility in managing’” the currency’s value, Shehu said, referring to the CBN. President Buhari said at the weekend he supported a stable currency, though he would keep “a close look at how recent measures affect the naira and the economy.”
The comments, made four days after the CBN said it planned to introduce a more flexible exchange-rate regime, left traders guessing whether he supported those measures.
Nigeria has held the naira at N197-N199 per dollar since March 2015, even as other oil exporters from Russia to Colombia and Malaysia let their currencies drop amid the slump in crude prices since mid-2014.
Foreign reserves dwindled as the central bank of Africa’s largest oil producer defended the peg, while foreign investors, fearing a devaluation, sold Nigerian stocks and bonds.
Meanwhile, financial analysts have called on the Central Bank of Nigeria (CBN) to quickly release guidelines for the implementation of the new foreign exchange regime it announced last week, saying that this would clear up uncertainties surrounding the move.
The CBN Governor, Mr. Godwin Emefiele, had told journalists at the end of the apex bank’s Monetary Policy Committee (MPC) two-day meeting in Abuja, last Tuesday, that in line with the Committee’s decision, the regulator had resolved to introduce greater flexibility in the interbank foreign exchange market structure and to retain a small window for critical transactions for prospective investors.
He said the move was aimed at staving off an imminent recession, adding, however, that the CBN would release details of the operation of the market, “at an appropriate time.”
According to analysts and forex dealers, the delay by the CBN in releasing the guidelines may have sent mixed signals on its readiness to implement the new policy especially given the concerns that analysts had raised over the retention of a window for critical transactions.
Principal Consultant, Henates & Associates, Mr. Henry Atenaga, said, “Once again, the naira, after months of being rationed at controlled exchange rates, is to be sold and bought at the open market although with two major question marks still looming large above it.
“The first question mark has to do with apparent unpreparedness of the Central Bank of Nigeria (CBN) for the change of direction before the announcement on Tuesday after the monthly monetary policy meeting of the bank.
This is hoping that this not yet again another knee jerk decision taken more in anticipation of expected or promised forex inflow as against reality of the Nigerian supply situation.”
Besides, he said, “The second question mark has to do with the infidelity buried in the plan to retain a special window for so called critical transactions. This is the window on a larger scale the CBN is actually closing and it is surprising that they expect to travel right by boarding two ships at the same time.
It is either the Nigerian foreign supply situation is too critical to leave to market forces alone to value and allocate or it is robust enough for this.” Similarly, a Lagos-based forex dealer, Mr. Martin Ahonsi, said, “The delay in announcing details of how the new policy will be implemented could mean that the CBN may not have finalised plans on the issue. So, it should have waited until everything was ready before making the announcement.
Now, there is a lot of uncertainty about how the policy is going to be implemented and this is not good for the market.” Also commenting on the CBN’s failure to provide details on the new forex plan especially in view of the fact that the MPC did not hike interest rates as was widely predicted, Chief Africa Economist at Standard Chartered in London, Razia Khan, said, “Any real liberalisation would be accompanied by some tighten-ing, as a stabilisation measure, at least in the short term.
That does not appear to have been considered. This is at best curious, at worst very worrying.” It would recalled that following the announcement by the CBN that it had decided to adopt a flexible exchange rate, the naira fell from N340 to N351 against the dollar on the parallel market.
Investors point out that the CBN’s de facto peg of N197 per dollar had become increasingly unsustainable due to a shortage of hard currency stemming from the slump in oil revenues. According to them, a liberalisation of the forex market is key to boosting economic growth.
