Central Bank Governor, Godwin Emefiele listed conditions under which the naira could be devalued. He made this disclosure at the African Investor Conference which took place in London.
The event was an opportunity for Mr. Emefiele to convince dismayed foreign investors to return to Nigeria. As expected, investors wanted to know if the exchange rate between the naira and the dollar will be devalued. Most investors believe the naira is somewhat overvalued against the dollar and is due for some correction.
Emefiele’s reaction: The Emperor as he is often called responded to the question in his typical uncanny fashion.
- According to him, the CBN could consider devaluing the exchange rate when he sees the price of crude falling to between $50-$45 (currently $75)
- He also mentioned that if this happens and the external drops to between $30 billion and $25 billion then surely they could consider moving on the exchange rate.
- He, however, stressed that even if they were to devalue the naira it wouldn’t be a sudden movement, rather a slow adjustment.
- Mr. Emefiele also voiced his concern about the threat of Shale claiming that this could be a factor in deciding whether to devalue the naira or not.
What this means: Market analysts have for weeks mooted plans of an impending devaluation of the naira. They often point to the rising inflation rate, declining oil revenues and lower non-oil dollar inflows as a possible factor. But with Emefiele’s laying out his consideration for a likely devaluation, the market now has a clear path to hedging their bets against holding the naira.
- For ordinary Nigeria, the message here is that watch the price of oil, Nigeria’s external; reserves (currently at $45 billion) as an indication of when then exchange rate could be devalued.
- Once these numbers hit this benchmark then you are probably better of selling down fast.
- This information could also dissuade speculators from short term hoarding of forex in anticipation of a devaluation.
One more question: The Governor also touched on other exchange rate issues such as the operation of the Investor Exporter Window.
- He was asked why we have multiple exchange rates, he pushed back claiming what exist in Nigeria are multiple windows and not multiple rates. The investor further explained his point that all market participants should be using the same rates and said the oil companies have a different rate.
- He also responded to the recent report about the CBN “floating the naira” after mentioning on its website that the exchange rate was “market-determined”. According to him, he wants to market to gravitate towards the I&E window encouraging anyone who wanted to buy dollars at market-determined rates to go there.
(Nairametrics)
