Nigeria: CBN declines clarifying currency plans

*Central Bank of Nigeria.

*Central Bank of Nigeria.

05 June 2016, Lagos — A meeting between the Central Bank of Nigeria (CBN) and local currency traders has failed to dispel uncertainty over the implementation of plans to abandon the naira peg and adopt a flexible currency, bankers said on Thursday.

The Financial Market Dealers Association (FMDA), an association made up of local currency dealers, initiated the meeting with the CBN Governor, Godwin Emefiele on Wednesday to discuss the policy, Reuters quoted the market operators to have said.

The central bank announced last week plans to abandon the Naira’s 15-month peg to the dollar, which has overvalued the Nigerian currency, harmed investments and caused the economy to contract.

However, the bank has yet to clarify how the new policy would work, spooking foreign investors, long worried about getting caught in the middle of a currency devaluation.

“We are unlikely to get anything in the next two to three weeks. I don’t think the guidelines are ready. The reality is that he (the governor) does not understand the meaning of signals,” said one senior banker, speaking on condition of anonymity.

“By not coming out (with details) the governor has shown he doesn’t believe the policy. There is the risk the policy could be reversed,” the senior banker added.

The central bank declined to comment on the meeting.

Dollar deals dried up on the interbank market on Thursday as investors stayed on the sidelines, dealers said, in a sign of the continued uncertainty created by the new policy.

The stock market posted its biggest daily decline in 16 months this week as investors waiting for clarity sold shares. The main index gained 1.02 percent on Thursday, clawing back some losses.

Emefiele has said it will adopt a flexible policy on the interbank market from a de facto peg of around 197 and retain a window for funding critical transactions, creating a dual exchange rate.

Prior to the pegged rate, the interbank traded as a two-way quote market and banks could place buy and sell orders. But the central bank has since banned banks from re-selling dollars purchased from it among themselves in order to curb speculation.

Analysts at DaMina Advisors say the delay could cause the central bank to backtrack as it tries to reconcile the new policy with the president’s vow not to devalue the Naira.

President Muhammadu Buhari for months rejected calls to devalue the Naira. During his Democracy Day speech last Sunday he backed the central bank’s flexible policy on the currency but said he was still against a devaluation.

“The bank is internally deadlocked and likely to backtrack on its promised commitment to adopt a flexible regime and will simply tweak the current illiquid managed fixed peg regime in an attempt to narrow the divergence between the official currency rate and the black market currency rate which is over 40 percent and growing,” the chief Africa frontier markets analyst at DaMina Advisors, Sebastian Spio-Garbrah said.

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