Falling reserves: CBN devalues naira?

Barely 24 hours after President Muhammadu Buhari warned that his government was prepared to take tough economic decisions, Central Bank of Nigeria (CBN) might have technically devalued the naira.

There were reports on Friday that CBN has moved the rate foreign exchange sales rate to foreign portfolio investors to N380.2/$, from the previous N366.7/$.

Official exchange rate remained 306/$ as at Friday.

The report, which quoted available information from Bloomberg terminal speculated that it could be a tentative move at a full-scale devaluation of the currency.

Speaking shortly after meeting with his Economic Advisory Council on Thursday, Buhari said ravaging the coronavirus pandemic could set off an exchange rate “realignment,”.

Analysts described the President’s statement as a rare acknowledgment by an administration that has made a stable currency a key economic pillar.

A global recession “could slow down Nigeria’s fragile growth and trigger exchange rate re-alignment,” the presidency said in a statement summarizing discussions.

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Last week the central bank denied it had plans to devalue the naira at this time, amid speculation of a markdown. The currency has remained largely stable over the last two years under the management of the central bank.

Crashing oil prices have increased pressure on the naira as foreign reserves in Africa’s top oil producer falls rapidly. Nigeria relies on crude sales as its main source of hard currency.

“These lines make me hopeful that they are coming around to considering a devaluation in the near term, instead of prevaricating,” said Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital.

The advisory group, headed by a former central bank board member, Doyin Salami, recommended the securitization of government debt, a new revenue stabilization program and cutting costs. The council voiced concerns over worsening economic fundamentals reflected by quickening inflation and weak external sector, the statement said.

CBN officials refused to comment on the matter when our correspondent spoke with them.

“If there is any official development on the foreign exchange policy, I will get back to you”, an official who did not want his name published declared.