Nigeria’s central bank is no mood to devalue the naira given the risks to inflation from a weaker currency, its spokesman said on Friday, potentially delaying investment flows into Africa’s biggest economy.
The central bank (CBN) said in a statement it believed the 22 percent depreciation in the naira after it scrapped the official foreign exchange window “is optimal at this time” and the bank would not be pressured into “desperate measures”.
International investors, who think a naira devaluation is long overdue, are holding back from buying Nigerian assets, raising risks of a deeper financing crisis for Africa’s top oil producer and most populous country.
“The CBN believes that the 48 percent decline in oil prices may not be transitory and made bold policy changes including closure of the subsidised official FX window, which resulted in a 22 percent depreciation in the naira,” bank spokesman Ibrahim Muazu said.
“We believe that this adjustment is optimal at this time.”
The central bank scrapped its bi-weekly currency auction in February and pegged the naira near to where it was trading on the interbank market at the time, curbing speculation.
The naira fell steeply on the parallel market after the bank, seeking to conserve its dollar reserves, last week banned importers from sourcing hard currency from the interbank market to buy a wide range of goods.
The naira hit a record weak point of 230 to the dollar on Wednesday while the bank rate was 196.95. Investors have questioned how long the central bank can hold the peg, which it has tweaked slightly four times since February.
CREDIBILITY AT STAKE
“The credibility of the interbank market has been lost at this point,” said Alan Cameron, economist at Exotix.
“The more volumes move to the black market, the harder it will become for the CBN to re-establish the credibility of any official rate. The window for a more modest devaluation is now closing, in our view,” he said.
Stocks, bonds and the currency have been on the ropes since the price of oil plunged last year.
Devaluation worries “will delay any recovery in investment flows … complicate the financing of Nigeria’s fiscal deficit, and potentially delays any economic recovery,” said Razia Khan, chief economist for Africa at Standard Chartered Bank.
Muazu said the central bank’s job was to ensure policy stability: “The CBN does not panic and will not take desperate measures to satisfy a few misguided interests in the market.”