CBN under pressure to devalue the naira

Recent developments in the foreign exchange market are putting the Central Bank of Nigeria under intense pressure to further devalue the naira.

The currency has been experiencing free fall since November 25, 2014 when the CBN Monetary Policy Committee devalued it by eight per cent from 155 to 168 against the United States dollar.

Following Saturday’s announcement of the postponement of the general elections by six weeks, the naira on Monday plunged from 188 to 200 against the dollar.

The Bankers’ Committee gave the hint of further devaluation on Thursday just as the nation’s External Reserves dropped by $1bn in 12 days.

The committee, which comprises the Central Bank of Nigeria governor, the deputy governors, chief executive officers of Deposit Money Banks and other stakeholders, said the managers of the economy, including the CBN, were currently seeking a new level to devalue the already battered currency.

Members of the committee met for over three hours in Lagos to review developments in the banking sector and the economy, among other issues.

The meeting, which was chaired by the CBN Governor, Godwin Emefiele, later appointed the Managing Director, Guaranty Trust Bank Plc, Segun Agbaje; Managing Director, FCMB, Ladi Balogun; Managing Director, CitiBank Nigeria, Omar Hafeez; and Director, Banking Supervision, CBN, Tokunbo Martins, to brief the press on some of its deliberations.

Agbaje said the currency was going through a period of ‘‘price discovery’’ to determine a new level for the currency.

He said, ‘‘where we are now is that oil prices are down. As a country, we are trying to find what level the currency devalues to. There is no central bank in the world that allows a free flow of its currency. What you do is try to find a price discovery and find a rate at which you can live with. I think we are going through that process in Nigeria. That is why at the last MPC meeting, the CBN devalued and also moved the midpoint of the naira. What you are seeing in the interbank market is again some price discovery.”

The GTBank boss explained that ‘‘devaluation is not a curse’’, adding that some major currencies of the world had gone through the process in recent times.

According to him, no nation  allows free flow of its currency.

Agbaje said, “I think that on the issue of exchange rate, exchange rates are very emotional things. The reality is that devaluation is not a curse. The Norwegian Krone, which is one of the strongest currencies, devalued by 13 per cent last year. I think about half-way through last year, the pound to the dollar was about 1.67; today, it is barely 1.52. So, where we are today is that oil prices are down.

“The thing about price discovery is that rates would go up and rates would come down. And so, for those who chose to speculate, you run the risk of actually losing money.

“So until we find what that rate is, which I believe in my own opinion we are around there now, and I believe that the CBN is also going through that price discovery, when they get there.

“Any country that has over $30bn in its reserves is able to defend its currency at a realistic rate. So, I don’t think we have a state of chaos around.  I told you about some very strong economies that have gone through some devaluation; so, it is not a curse.”

Agbaje also said that the CBN had no plans to change rules regarding the operation of domiciliary accounts.

He said, "There will be no change in the operation of domiciliary accounts. The CBN remains committed to the foreign exchange market. There will be free flow of funds into and out of the domiciliary accounts’."

The GTBank boss added that banks’ exposure to the oil and gas sector did not pose any challenge to the banking industry because the CBN had already carried out a stress test on all the banks with oil prices at $50 and $55 per barrel.