CBN to resist pressure to devalue naira
The Central Bank of Nigeria, yesterday, said it
will resist pressure to devalue the naira
since it retains ample funds to defend the
currency.
Mr. Ugochukwu Okoroafor, CBN
spokesperson said the apex bank Governor
is expected to stay the course until his term
is up in 10 months.
The naira has fallen in recent months,
trading outside the CBN’s target band of
150-160 naira to the U.S. dollar since June,
initially due to foreign investors booking
profits on their naira assets, and on
importers buying dollars.
Okoroafor said by telephone that the
institution remained committed to the band.
“We have the resources to meet demand.
We are still determined to keep within that
band,” he CBN Deputy Governor, Kingsley
Moghalu also said there were no plans to
change the band in an interview with
Reuters in London on Tuesday.
“We are comfortable with the band as it is
currently – we do not have any intention of
doing anything spectacular,” he said.
But a similar naira weakness, partly caused
by excessive spending prior to 2011
national elections, forced the central bank to
lower the target band from 145-155 naira
to the dollar in November that year, after
months of struggling to prop it up.
Pressure on the currency will worsen next
year as elections loom again in 2015 –
traditionally at a time when government
expenditure becomes very loose, pumping
excess liquidity into the banking system.
“It’s the case all over the world –
governments tend to spend a lot leading up
to elections,” Moghalu said.
The unit has hovered around the 162-163
level in recent months, on strong demand
for dollars. It touched a 20-month low of
163.70 naira to the dollar last week.
It closed at 163.10 naira to the dollar on
Monday, after it became clear the central
bank would not intervene again to prop it
up. By 0910 GMT on Tuesday it had
rebounded to 162.90.
“We believe that the probability of (moving
the trading band) is slim in the coming
months,” said Gaimin Nonyane, an
economist at Ecobank, adding that the bank
had ample funds.
“Such a move would … increase inflationary
pressures. Given the central bank’s
commitment to promoting price … stability,
we think the current rate … will be
maintained.”
Nigeria’s consumer inflation ticked up to 8.7
percent in July, though Moghalu said he
expected it to stay in single digits this year.
Central bank governor Lamido Sanusi has
repeatedly warned that excessive election
spending poses an inflation risk that he is
ready to counter with tight monetary policy.
Analysts expect Sanusi will stick to that path
until his planned departure next July when
his five-year term expires. RISKS OF
DEVALUING
“The central bank will continue to defend
exchange rate stability … as long as
governor Sanusi remains in charge,” said
Standard Bank’s Samir Gadio.
Sanusi has spent billions of dollars of
foreign reserves over the past months in
keeping the naira, which has lost 4.6
percent since the year, within its target
corridor.
But Nigerian foreign exchange reserves
stood at $46.85 billion by Aug. 29, down
only 0.23 percent month-on-month from
July, so they are not being rapidly depleted.
“Nothing about the central bank’s recent
guidance or behaviour suggests that is
about to allow a devaluation of the naira,”
said Alan Cameron, economist at CSL
Stockbrokers.
The bank tightened liquidity significantly in
July, slapping a 50 percent reserve
requirement on public sector deposits, up
from 12 percent previously. That sucked 1
trillion naira out of the banking system and
although the effect on the naira was
shortlived, it showed the lengths to which
the bank will go.
Moghalu said, however, that the purpose of
the reserve requirement hike was to
encourage banks to lend more, rather than
to boost the currency.
“We would like to see more real economy
lending and an expansion of the deposit
base, and higher deposit rates, so that
people can save,” he said.
Another factor, said Charles Robertson,
economist at Renaissance Capital, was that
pressure on emerging market currencies
generally could subside in the coming
weeks, so the naira may start to recover all
by itself.
“We are comfortable,” said Moghalu. “The
naira has appreciated a bit in recent days.”
will resist pressure to devalue the naira
since it retains ample funds to defend the
currency.
Mr. Ugochukwu Okoroafor, CBN
spokesperson said the apex bank Governor
is expected to stay the course until his term
is up in 10 months.
The naira has fallen in recent months,
trading outside the CBN’s target band of
150-160 naira to the U.S. dollar since June,
initially due to foreign investors booking
profits on their naira assets, and on
importers buying dollars.
Okoroafor said by telephone that the
institution remained committed to the band.
“We have the resources to meet demand.
We are still determined to keep within that
band,” he CBN Deputy Governor, Kingsley
Moghalu also said there were no plans to
change the band in an interview with
Reuters in London on Tuesday.
“We are comfortable with the band as it is
currently – we do not have any intention of
doing anything spectacular,” he said.
But a similar naira weakness, partly caused
by excessive spending prior to 2011
national elections, forced the central bank to
lower the target band from 145-155 naira
to the dollar in November that year, after
months of struggling to prop it up.
Pressure on the currency will worsen next
year as elections loom again in 2015 –
traditionally at a time when government
expenditure becomes very loose, pumping
excess liquidity into the banking system.
“It’s the case all over the world –
governments tend to spend a lot leading up
to elections,” Moghalu said.
The unit has hovered around the 162-163
level in recent months, on strong demand
for dollars. It touched a 20-month low of
163.70 naira to the dollar last week.
It closed at 163.10 naira to the dollar on
Monday, after it became clear the central
bank would not intervene again to prop it
up. By 0910 GMT on Tuesday it had
rebounded to 162.90.
“We believe that the probability of (moving
the trading band) is slim in the coming
months,” said Gaimin Nonyane, an
economist at Ecobank, adding that the bank
had ample funds.
“Such a move would … increase inflationary
pressures. Given the central bank’s
commitment to promoting price … stability,
we think the current rate … will be
maintained.”
Nigeria’s consumer inflation ticked up to 8.7
percent in July, though Moghalu said he
expected it to stay in single digits this year.
Central bank governor Lamido Sanusi has
repeatedly warned that excessive election
spending poses an inflation risk that he is
ready to counter with tight monetary policy.
Analysts expect Sanusi will stick to that path
until his planned departure next July when
his five-year term expires. RISKS OF
DEVALUING
“The central bank will continue to defend
exchange rate stability … as long as
governor Sanusi remains in charge,” said
Standard Bank’s Samir Gadio.
Sanusi has spent billions of dollars of
foreign reserves over the past months in
keeping the naira, which has lost 4.6
percent since the year, within its target
corridor.
But Nigerian foreign exchange reserves
stood at $46.85 billion by Aug. 29, down
only 0.23 percent month-on-month from
July, so they are not being rapidly depleted.
“Nothing about the central bank’s recent
guidance or behaviour suggests that is
about to allow a devaluation of the naira,”
said Alan Cameron, economist at CSL
Stockbrokers.
The bank tightened liquidity significantly in
July, slapping a 50 percent reserve
requirement on public sector deposits, up
from 12 percent previously. That sucked 1
trillion naira out of the banking system and
although the effect on the naira was
shortlived, it showed the lengths to which
the bank will go.
Moghalu said, however, that the purpose of
the reserve requirement hike was to
encourage banks to lend more, rather than
to boost the currency.
“We would like to see more real economy
lending and an expansion of the deposit
base, and higher deposit rates, so that
people can save,” he said.
Another factor, said Charles Robertson,
economist at Renaissance Capital, was that
pressure on emerging market currencies
generally could subside in the coming
weeks, so the naira may start to recover all
by itself.
“We are comfortable,” said Moghalu. “The
naira has appreciated a bit in recent days.”
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