The decision by the Central Bank of Nigeria (CBN) to close down its official market and channel all official forex demand to the interbank market has been described as a de facto devaluation of the naira.
According to Reuters, following the scrapping of the bi-weekly currency auction market, the naira will now N198 to a dollar, unveiling a de facto devaluation of the currency of Africa’s biggest economy and top oil producer.
FMDQ, a group comprising Nigeria’s main commercial banks and the central bank, said commercial banks had also been banned from re-selling central bank dollars to other banks, another attempt to end speculation in the naira.
Also, commenting on the decision to close the RDAS, Razia Khan, an analyst at Standard Chartered Bank, who is based in London, stated in a report titled: “Nigeria stops RDAS FX sales,” obtained by TheCable, stated that “this is an effective devaluation of the official Nigerian naira exchange rate.”
Advertisement
“With Nigeria forex reserves under pressure as a result of weaker oil prices, markets had anticipated eventual unification of Nigeria’s different exchange rates. Following the announcement in February that presidential and parliamentary elections would be postponed to 28 March, Nigerian markets were subject to greater volatility.
“Naira losses were frequently large enough to trigger a daily shutdown of Nigeria’s FX market. In response to these pressures, the CBN intervened directly through special auctions, filling demand for FX directly, but at a much higher dollar-naira exchange rate than that prevailing at the bi-weekly official RDAS.
“With FX reserves under pressure, and amid growing concern that a wide RDAS-interbank spread would encourage ‘round-tripping’, the CBN will now stop RDAS auctions, effectively discontinuing its FX subsidy for certain categories of demand. This is positive news, and should help create more transparency in the Nigerian market. However, with oil prices currently at levels where FX reserves will be difficult to replenish, the CBN’s appetite for continued support of the interbank FX rate will be closely monitored,” she explained.
Advertisement
2 comments
Smart move by the central bank of Nigeria. And here’s why l say that, why should the CBN continue to, in effect, be giving away the precious few remaining dollars that belong to us all Nigerians to just a few people to enrich them even more? I mean, if they’re willing to buy 210,215,220 naira for $1.00 then the central bank should oblige them. I mean it doesn’t take a rocket scientist to know that all these people do is buy dollars at 168 and resell at 210 or whatever! It lightens my heart to know that there are some smart people at the central bank of Nigeria! Good job CBN.
And the people who buy dollars at N210 will think twice before buying toothpicks, fruit juice, champagne and Range Rovers et.al. We need to end this continuous consumption binge and produce and use what we need. Let the Naira find its value and then we shall cut our coats according to our cloth. The peoples of this country are really unproductive and hedonistic. Let fiscal discipline reign!!