CBN justifies naira devaluation

29 December 2014, Abuja – The Central Bank of Nigeria (CBN) has said the post-devaluation band for the naira is “appropriately priced”, but black marketers on the street are trading it at between three and five per cent below its floor in the run-up to Christmas.

Reuters reports that despite an eight per cent devaluation of the target band and efforts last week to crack down on currency speculation by squeezing liquidity, the naira remains at record lows. But while the CBN and the interbank markets argue over the naira’s fair value, it’s harder to argue with the price on the streets where many dollars are bought and sold.

Godwin Emefieli, CBN Governor

Godwin Emefiele, CBN Governor

The naira was devalued and its target trading band widened to N160 to N176 against the dollar, but few analysts believe that can hold, given a steady decline in reserves.

Several street changers, mostly Muslim northerners from the Hausa and Fulani ethnic groups, told Reuters they were trading a dollar for between N180 and N182 on Christmas eve.

Last week, when the naira hit a record low, they were trading at 190 to the dollar, some 6.5 per cent below the lower end of the bank’s target band.

“The naira’s come back a bit because people are wanting more of it now ahead of Christmas,” said Ibrahim Sanni, standing by a palm-lined Lagos hotel adorned with Christmas decorations. “Last week we bought at 190, lower than ever.”

But he added that trading has been very slow since the end of November, when the central bank devalued the currency. The naira has been hit hard in recent months by a steep fall in the price of Nigeria’s main export, oil.

The CBN also introduced new policies last week banning banks from holding their own funds in dollars and decreeing that dollars bought from the interbank market could be held only for up to 48 hours. Trading has almost ground to a halt since the measures were introduced.

The rise in the dollar in heavily import-dependent Nigeria has caused pain ahead of the Christmas shopping season, with small-scale retailers saying sales were badly hit. “Even in Christmas week, they aren’t buying,” said Bola Maja, 40, who runs a clothes shop in Lagos.


– The Nation_

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