Over the past month, the Central Bank of Nigeria (CBN) seemed determined to defend the Naira till it regained stability, despite an initial devaluation to N165/$1, from N155 last November. It had spent an average of $200 million daily to cover surging dollar demand and on more than one occasion shut down electronic trading of the naira.
However, findings by Reuters yesterday showed that the CBN had ditched its weekly currency auction on Wednesday, stating that it will only sell the dollar at a rate of N198. This move, Reuters says “amounts to a de facto devaluation of the currency of Africa’s biggest economy.” What this means is that naira has been devalued for the second time in less than six months, but the CBN will avoid heightening the already panicked economy. Prior to the de facto move, the naira had already been trading between N200 and N220 on the black market, and as low as N199 to N210 on the interbank market. Market analysts have long predicted that a further devaluation was inevitable.
Financial analyst, Bismarck Rewane and Segun Agbaje, chief executive of GT Bank, have both insisted that another devaluation was inevitable. “I don’t think the CBN is trying to avoid devaluation. I think what they are trying to do is to time it and do it appropriately but we don’t have the luxury of timing anymore. We have to do the right thing now,” said Mr Rewane in an interview with Vanguard.
The naira has lost more than 25 percent of its value over the last year. With the delayed elections, the oil crisis, and the stock market crash already stirring too much panic within the investment space, a hidden move is the safest route to devaluation. Bismarck however believes that a second devaluation will lessen the burden on the CBN and allow the market repair itself. “The question is that we now need to bite the bullet. When you bite the bullet, the market will correct it,” says the Lagos-based financial expert.
“That is, if you move the currency to as much as a fair value, then the amount of naira available to everybody to buy the dollars will be reduced and naturally the naira will appreciate in the long run.”