CBN Re-thinks Tight Controls As Demand For Forex Drops

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Central Bank of Nigeria (CBN) Governor, Godwin Emefiele has said that although the controls placed on the naira are necessary to limit the demand for dollars, he will consider easing restrictions if demand for foreign exchange drops further.

Emefiele disclosed this to delegates at a conference on Africa hosted by the Financial Times in London on Monday. The central bank had little choice in imposing the curbs in order to preserve foreign-currency reserves, he said.

“Once we have achieved a result we can allow ourselves to look at a freer market,” the governor said.

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Emefiele imposed restrictions on trading and introduced bans on purchases of dollars by certain importers after the Naira plunged to a record low in February following a drop in oil revenue. With the backing of President Muhammadu Buhari, Emefiele has resisted calls to ease the controls and devalue the naira despite criticism from investors, businesses and fellow members of the Monetary Policy Committee. The restrictions have reduced liquidity, prompting JPMorgan Chase & Co. to remove the nation’s bonds from its emerging-market bond indexes last month.

“I think it’s working and I think you should be patient with us,” Emefiele told Bloomberg.
The naira has traded at an average of N198.91 per dollar on the interbank market since the beginning of March after reaching a record low of N206.32 on February 12.

The Nigerian naira is “appropriately priced” and the central bank does not plan any adjustments in the currency for now, the head of the bank said on Monday.

Speaking at a conference in London, Godwin Emefiele said that restrictions put in place in June to conserve foreign exchange reserves and support the naira were working.

Africa’s largest oil producer has restricted imports to offset a fall in vital oil revenues, which has battered public finances and the naira.

On Monday, the bank weakened its official exchange rate peg on the Lagos interbank market to N197 per dollar from N196.95 it set last week. It was the seventh adjustment since the regulator introduced tight currency controls in February.

It did not provide any reason for the adjustment, which traders said was made through a message. The naira traded weaker in the parallel market to N223. Forward markets, used for betting on future exchange rate swings, priced it to drop another 20 percent over the coming year.

Emefiele said Nigeria should focus on diversifying its economy and needed to manage what little hard currency reserves it had.

“At this time … the currency is appropriately priced,” Emefiele told the FT Africa Summit.“(People) are asking me whether I am ready or not for an adjustment, and I tell them: At this time, no adjustment,” he said. He added he was looking at various options but gave no details.

Since June, purchasers of foreign currency bonds and importers of 41 kinds of items, from toothpicks to private jets, have been restricted from purchasing dollars on interbank markets.

Nigerian Vice President Yemi Osibanjo said on the weekend the country would keep restrictions on foreign currency for the time being to preserve reserves but promised to relax them eventually.

The restrictions were effective, Emefiele said, adding: “It is working and people should have patience with us.”
The central bank weakened its exchange rate peg slightly to N197 against the dollar on Monday from N196.50 it set last week, traders said.

Traders said the regulator sent a message announcing the adjustment which is the seventh since the bank introduced tight currency controls in February.

See Also: HABA!!! Naira Depreciates To N230 Per Dollar In Parallel Market


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