Report: CBN ‘optimistic’ naira will settle at 250/$1

The Central Bank of Nigeria (CBN) is “reasonably optimistic” the naira will settle at around 250 to the US dollar, Reuters reports.

However, the bank projects that there will be an initial period of weakness following a flotation on Monday, according to a letter to President Muhammadu Buhari by Godwin Emefiele, the CBN governor, the news agency further reported.

The CBN said on Wednesday it would begin market-driven foreign currency trading next week, abandoning the peg of 197 naira per dollar that it has supported for 16 months.

Foreign investors and economists have called for months for a devaluation as chronic foreign currency shortages choked economic growth and deterred investment.

The naira is expected to fall sharply when interbank trading begins on Monday, but the central bank said it did not have a target for the currency and the price would be “purely” market-driven. The naira was trading on the black market at around 370 to the dollar on Thursday.

Giving the first indication of a target, Governor Godwin Emefiele said in a June 3 letter to Buhari — seen by Reuters — that the central bank hopes the naira will eventually trade at around 250 per dollar, a level the president has “approved”.

“I must assure Your Excellency that we are indeed reasonably optimistic that at some point the rate will settle around 250 naira,” Emefiele says in the letter.

The letter, which briefs Buhari on the foreign exchange plan announced on Wednesday, says it could take three to four weeks to clear a $4 billion backlog of foreign exchange demand.

Buhari has for months said that he does not want the naira to be devalued, but backed a more flexible exchange rate policy when the central bank outlined its plans in May, without elaborating.