CBN Rules Out Further Devaluation Of Naira

The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday ruled out further devaluation of the naira and warned against speculative trading in the currency, vowing that it would do everything within its power to protect it from further depreciation.

The Governor of the CBN, Mr. Godwin Emefiele, stated this while addressing journalists shortly after the two-day MPC meeting held at the central bank’s headquarters in Abuja ended.

Emefiele said while the CBN would continue to provide foreign exchange for Nigerians engaged in legitimate business, it would not allow the nation’s currency to come under speculative attacks.

He said currently, the naira was appropriately priced, adding that there was no need for anybody to worry that there would be another devaluation of the currency.

The governor, however, admitted that significant pressure persisted in the foreign exchange market during 2014, resulting in further weakening of the naira across the three segments of the markets.

For instance, he said the exchange rate at the Retail Dutch Auction System-Spot opened at N157.34 to the dollar (including one per cent commission) and closed at N164.08, representing a depreciation of N12.34 or 4.28 per cent.

The inter-bank selling rate, according to him, opened at N165.7 per dollar and closed at N180, representing a depreciation of N14.73 or 8.63 per cent in the period, while at the Bureau de Change segment, the selling rate opened at N170 per dollar and closed at N191.50, representing a depreciation of N21.50k or 12.64 per cent.

Emefiele said, “We have a responsibility in line with our core mandate to defend the currency and the exchange rate of the naira. What is paramount is that the external reserves must be defended, the exchange rate policy must be defended.

“We will ensure that economic activities continue to take place; anybody who needs foreign exchange to transact business in the country will be allowed to do so, but for legitimate purposes; and we will not tolerate speculative attack on the currency.

“At this time, the naira is appropriately priced and that there is no need for anybody to worry that there will be devaluation.”

When asked about his assessment of the nation’s currency since the last devaluation in November 2014, he said, “Our assessment since devaluation remains positive, and I repeat; we are monitoring the market and we will ensure that all economic activities that take place in the market are supported by the CBN from time to time.”

The governor also faulted the JP Morgan index report released last Friday, which placed Nigeria on a negative watch for the next three to five months because the country’s foreign exchange and the bond market was illiquid.

But Emefiele rejected the assertion that the market was illiquid, noting that the CBN took the decision to reduce the net open position from one per cent to zero per cent owing to the volatility in the market.

He said, “We disagree with this assertion that the market is not liquid. It is important to note that first of all, by reducing the open position from one to zero, it did not mean that there was no trading. What we only insisted was that the banks must close their position to zero because of the volatility of the market during that period on the exchange rate and not that we could not allow banks to continue because we also discovered certain uncomfortable tendencies in the market, which portended that there was speculative attack on the currency.

“We also made it very clear that we are monitoring the market to the extent that the interbank market will continue to support trading activities of both Nigerians and foreign investors, and that at any point when we discover that the market is unable to absorb or provide the liquidity that is needed, the CBN will come up and intervene in the market to provide the liquidity that is needed for legitimate transactions.”

He added that due to the importance of the JP Morgan index to the economy, the CBN would engage the agency to provide it with facts and figures to prove the level of Nigeria’s liquidity.

The governor added, “So, we are looking at it and will be engaging the JP Morgan index team to provide our numbers to prove the level of liquidity and I am very optimistic that they will see reasons with us.

“We are committed to remain on the index, we will do everything possible to continue to remain on the index, because we know the adverse impact that exclusion from the index will cause the country.”

On the key monetary policy indicators, the governor said the MPC decided to leave them unchanged at their current levels owing to the fact that their impact had yet to crystallise on the economy.