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Devaluation speculation mounts as naira weakens on I&E window

• CBN removes N379/$1 rate from its website



The Central Bank of Nigeria’s (CBN) removal of the exchange rate of N379/$1 from its website homepage on Friday, as well as the weakening of the naira to a record low on the Investors and Exporters’ (I&E) window on the same day, reignited speculation in financial circles, at the weekend, that another devaluation of the local currency could be imminent.


Although, the apex bank’s website still showed the selling exchange rate of naira to the dollar at N380 per dollar as at May 10, Sunday Telegraph gathered that the regulator looks set to unify the country’s multiple exchange rates around the I&E window rate.


According to traders, the naira hit a record low of N419.75 against the dollar before it closed at N411.67 per dollar on the I&E window on Friday. Reuters quoted a currency trader at a top tier Nigerian bank as saying: “What the Central Bank is saying is that the (OTC) spot rate will be the official rate because that’s where the largest volumes trade.” CBN Governor, Mr. Godwin Emefiele, had said last year that the apex bank will pursue exchange rate unification around the I&E window rate.


The World Bank and the International Monetary Fund (IMF) have consistently said that Nigeria’s multiple currency regime frustrates businesses and that the rates should be unified in order to attract investment. Indeed, the World Bank has linked approval of a $1.5 billion budget support loan for Nigeria to currency reforms.


A sharp drop in the price of oil (the commodity that accounts for 90 per cent of Nigeria’s export earnings), coupled with a Covid- 19-induced exit of foreign portfolio investors, has negatively impacted the country’s external reserves, thus making it difficult for the CBN to meet rising dollar demand.


With the naira under pressure, the CBN had been trying to unify the exchange rates and boost the dollar supply through direct interventions.


It revised the futures rate on the naira upwards last month to ease pressure on the local currency after quoting the 150-day futures contract at N435.81, in its first dollar sales to foreign investors this year.


The regulator has also taken several actions to increase its foreign earnings and improve liquidity across the FX windows. For instance, on November 30, 2020, the CBN directed all International Money Transfer Operators (IMTOs) to pay funds to beneficiaries of Diaspora remittances in foreign currency (dollars) as against the erstwhile naira payment.


Similarly, in a bid to incentivise the inflow of Diaspora remittances and boost the external reserves, the CBN in early March introduced a “Naira for dollar scheme,” under which recipients of Diaspora remittances will be paid N5 for every $1 received.


The scheme commenced on March 8 and was initially slated to expire on May 8 but the CBN recently announced that it has been extended until further notice


The scheme, however, does not seem to have a significant impact on forex liquidity in the parallel market as the naira fell marginally to N484/$1 on Friday from N483 per dollar on Thursday. Analysts note that dollar shortages have contributed to inflation rising for the 19th straight month to 18.17 per cent in March, a development that is of major concern to the CBN.


However, as speculation mounts that the apex bank is about to devalue the naira, analysts also pointed out at the weekend, that Emefiele, had in late March, denied a Bloomberg report that the country had adopted a flexible exchange rate system.


The news agency had quoted the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, as saying: “The government will start to use the flexible rate, that has until now applied to investors and exporters, for government transactions too.


“On FX, this is work in progress. The CBN is working to be able to control the management of the economy. We have been able to make some progress. If you remember, in 2020, we started with official price of 305/$, and midyear, it was adjusted to 360/$ and towards the last quarter of the year, the federation is getting, having inflow and outflow monetized at NAFEX rate.


So, within the government and the Central Bank, there is only one official rate and that’s the NAFEX rate.”


But the CBN Governor had debunked the report, insisting that Nigeria was still sticking to its floating exchange rate policy. Emefiele said: “It might interest us to know that since January the CBN has not intervened in the I&E window; the market has always operated within the band of around close to about N409 to a dollar. In fact, at some point, it attained N412 close to N413 and began to move and that is the way it is supposed to move.


“The Central Bank’s job is to watch the market and see how it’s operating and from there, determine whether or not to intervene to moderate the rate in the market in line with our own reading or where we think the new rate should be.”


Continuing, he said: “We have been working with the Ministry of Finance, with the government to see to it. How we moderate and see to it that we achieve a stable exchange rate regime in the country.”


In line with the extant rules of the IMF, the country is deemed to practicing what is known to be Monetary Policy practices as long as its rate varies or ranges around the band that is not more than 2 per cent below the nominal market rate, in our case the nominal market rate is NAFEX.”


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