Naira could be allowed to devalue if… – Sanusi

Posted by admin CBN (Central Bank of Nigeria), Headlines Thursday, October 6th, 2011

Nigeria’s naira could be allowed to devalue if oil prices and foreign exchange reserves continue to fall and monetary intervention attempts are exhausted, the Central Bank of Nigeria (CBN) said on Wednesday.

The CBN has been pumping the United States dollar into the market at bi-weekly auctions, to help support the local currency, but without any sustained success.

CBN Governor, Lamido Sanusi said there was no change in the foreign exchange stability stance for now, but the bank would not support the naira at all costs.

“Certainly if we do continue to see threats to oil price, if we do continue to see threats to the reserve position and if we think we have exhausted the limits of monetary intervention, we will have to do that and we will have to announce, but if there’s going to be a depreciation, it’s something we want to be in control of and we want to be the ones that will announce it,” Sanusi said on CNBC Africa television.

He added that “at the moment, the pressure is coming from a number of sources. There are questions about security, there are questions about the expansionary fiscal position for 2012 and, of course, there are the international issues.”

The CBN broke its target of keeping the naira within three percent above or below 150 to the US dollar again on Wednesday, after breaching the band for the first time last week, deepening the naira’s decline further.

CBN sold $400 million at 155.40 at the bi-weekly auction on Wednesday, short of the $685.37 million demand, as the local currency was trading at 162.25 to the dollar in the interbank market, its weakest ever.

By pumping dollars into the system, the CBN was dipping into Nigeria’s foreign reserves, which are built up through the sale of its crude oil.

Foreign exchange reserves fell to $31.7 billion by end-September, the lowest in 13 weeks.

The International Monetary Fund (IMF), earlier this year, had said the naira was overvalued and that a more flexible approach to currency control would cushion external shocks to sub-Saharan Africa’s second-largest economy.

But Sanusi said a stable exchange rate was crucial for maintaining price stability and attracting foreign investment.

-Tribunewp_posts