CBN Governor, Sanusi Lamido Sanusi
By Obinna Chima
The perennial decline suffered by Nigeria’s currency - the Naira - against the US Dollar at Central Bank of Nigeria’s (CBN’s) Wholesale Dutch Auction System (WDAS), has remained a source of concern to currency dealers.
The local currency further dipped at Monday’s session of the regulated bi-weekly auction to N153.91 to a dollar. The amount represented a slide by 38 kobo, as against the N153.53 to a dollar it traded last Wednesday.
The decline at Monday’s session, once more threatened the apex bank’s Naira defence policy. The CBN has a deliberate policy of defending the local currency within a band of + or – 3 per cent of N150 to a dollar. Its current value at the WDAS was 59 basis points close to + three per cent (N154.5 to a dollar).
Experts in foreign exchange market have advised the apex bank to devalue the Naira. Currency devaluation is a reduction in the value of a currency with respect to other currencies with which that currency can be exchanged.
Reacting to the fate suffered by the Naira, Head of Research and Strategic Planning, Sterling Capital Limited, Mr. Tayo Omidiji, urged the apex bank to devalue the local currency.
He also argued that the huge demand observed at the bi-weekly auction was responsible for the persistent drop in the value of the local currency. “The CBN has not been able to meet demand at the WDAS. But the only thing I think should be done at the moment is to devalue the Naira,” Omidiji said in a telephone chat with THISDAY.
Currency Analyst, Afrinvest West Africa, Mr. Babatunde Obaniyi, said that the feelers from the market suggested mixed outlook for the Naira. But he forecast that in the short-run, the apex bank would continue to defend the local currency.
Obaniyi spoke at the recent bi-monthly forum organised by the Finance Correspondents Association of Nigeria (FICAN), in Lagos.
“The market is also expected to continue to factor in the crude oil prices. Crude oil prices will determine the level of external reserves, which in turn will determine the extent to which the CBN can continue to support the naira. The weakening global economic outlook implies there is downside risk to the oil price.
“Nigeria’s heavy import dependence explains the country’s high forex outflows. Long term outlook of the Naira is largely dependent on oil production and international price levels (mostly unpredictable) But for how long can we use our foreign reserves to defend the Naira at the expense of dearth of investments in critical infrastructure?” he queried.
But the Managing Director of a Bureaux De Change (BDC) firm who spoke with THISDAY speculated that the apex bank was working towards devaluing the local currency.
“There is a strong belief by operators in the market that the CBN is devaluing the Naira gradually. If you watch the trend, you will find out that the Naira has been losing gradually,” he added.