CBN under pressure to devalue naira again

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.
Balogun also told journalists that
despite the fall in oil prices,
government revenues last year
increased by N75bn.
Balogun, who added that about
N150bn increase was being
expected this year, explained that
owing to the structural challenges
in the economy, banks would
support the government to
diversify the economy.
According to the FCMB boss, banks
will ensure that loans are given to
Small and Medium-scale Enteprise
operators and people in the
agricultural sector.
Hafeez, said due to the volatility in
the foreign exchange market, the
CBN had said that it would continue
to meet the liquidity needs of the
market, adding that Emefiele had
said that the market did not need
to panic any longer.
Martins said despite the volatility in
the foreign exchange market, the
country’s banks were still sound,
safe and strong.
She said the capital adequacy
levels, liquidity ratios, profitability,
asset quality and other ratios of the
banks were all above average and
the regulatory minimum.
On the banks’ exposure to the oil
and gas sector in the light of
falling oil prices, Martins said
Nigerian banks had one of the
highest capital levels in the world,
adding that they were safe should
the unexpected happen.
Emefiele told the CNBC Africa on
Thursday that there was “no need
to panic” about a slide in the
currency, after figures showed that
the bank had been burning through
more than $110m a day in an
attempt to defend the naira.
“We are not in the best of times but
there’s no need to panic,” he said,
ruling out an emergency Monetary
Policy Committee meeting. He
stated that floating the currency
was not an option.
Figures on the CBN website on
Thursday showed that the foreign
exchange reserves fell to $33.4bn
as of February 10, a drop of $1bn
over the previous 12 days as the
CBN sold hard currency to defend
the naira.
The reserves stood at $34.4bn on
January 27, 2015.
Meanwhile, reports on Thursday
indicated that the naira was likely
to continue its fall next week as
investors worry over the
postponement of the general
elections by the Independent
National Electoral Commission and
its impact on the economy and the
country.
The naira hit a record low of 206.60
against the dollar on Thursday at
the interbank market, and dealers
halted electronic trading for the
second consecutive day.
Dealers had halted trading on
Wednesday when the naira hit 204
against the dollar.
“Demand remains strong and
unless we have large dollar inflows
into the market, the local currency
will continue to be under
pressure,” a dealer said.
The CBN has repeatedly sold dollars
to support the local currency. It
has also been relying on the
external reserves to defend the
naira.
However, other African currencies
like the Ghanaian cedi and Kenyan
shillings are expected to remain
strong next week.