The Central Bank Governor, Mr. Lamido Sanusi, has said that the value of the naira need not be maintained “at all costs”, though he predicted the currency would remain stable.
Nigeria’s foreign reserves, which peaked at $62.24 billion in mid-May 2008, has depreciated by over 43 percent since then, closing last week at $35.24 billion.
This comes after several months of meeting increasing demands for foreign exchange, which has taken its toll on the foreign reserves.
Mr. Sanusi further said “exchange rates have multiple equilibria, and equilibrium exchange rates will depend on what we see as the long-term sustainability of the reserve positions.”
A financial analyst, who spoke off record, said though the foreign reserves are still at comfortable levels, the trend of withdrawals in the last few months is a cause for worry.
“The last time the naira was devalued was when many portfolio managers left Nigeria at the thick of the global financial crisis.
The situation has not changed pretty much and even many diaspora Nigerians have reduced the amount of money sent back home.
The CBN is now the major source of foreign exchange.”
He said the lack of transparency on how the foreign reserves is calculated also puts doubt on how well the economy is being managed.
“If the budget benchmark is $45 dollars, and we have had higher prices in the last few months, how come the excess crude account is not replenished? Crude oil prices have increased, production has gone up, but reserves are dropping,” he said.
An indication of the direction of the currency market emerged last week as the naira sold for N150.01 at the official Wholesale Dutch Auction System (WDAS) window, for the first time in several months.
At the interbank market, the naira sold for 152.25 to the dollar, with dollar demand outstripping supply at the Central Bank’s bi-weekly forex auction.
Prior to now, the naira had fluctuated between N148 and N149.50 at the official window, a band that it had maintained since 2008.
A total of $550 million was offered at the WDAS last week, while $771.65 million was demanded. The total sale stood at $707.65 million, representing 91.71 percent of what was demanded.
Doyin Salami, a member of the Monetary Policy Committee of the CBN, said at the August Breakfast meeting of Nigeria South Africa Chamber of Commerce, that the government has to make a choice whether to defend the value of the naira, in which case, it could commit huge sums from the reserves to meet demand; or could decide to devalue the naira in order to reduce pressure on funds.
“Should I defend the naira or should I defend the foreign reserves? That is the question for the Central Bank to answer. Whatever happens is going to have effect on inflation,” Mr. Salami said.
The last time the currency was devalued was in December 2008, when the rippling effect of the global financial crisis took its toll on the naira, which had remained stable for nearly three years before then.