Nigeria’s central bank Governor Godwin Emefiele said he is committed to a currency regime that sends foreign investors fleeing from the nation’s markets and exacerbated a dollar shortage.
The Central Bank of Nigeria won’t allow “faceless and criminally minded people to destroy the currency under the guise of a free float as is being canvassed,’’ Emefiele said in a speech on Saturday in Abuja, the capital, while accepting an award from a local newspaper. Independent estimates and “purchasing power parity analysis” by the regulator showed that the currency shouldn’t be so low on the unofficial market, which has been influenced by “criminal activities,” he said.
Speculation that Nigeria would allow the currency to drop became widespread after the Abuja-based central bank eased some capital controls last month and weakened the exchange rate which business travelers and those paying overseas medical and school bills can use to buy dollars. While the government abandoned the currency’s peg to the greenback last year, the naira’s official rate has been range bound between 305 and 317 per dollar since August.
The West African nation imposed tighter foreign-currency controls from late 2014 to protect the naira and reserves as oil prices plunged. Importers of 41 goods the government has deemed non-essential or that should be processed locally, including textiles and rice, have been barred from accessing the official foreign-exchange market, forcing them to buy dollars on the black market.
The naira fell to a record 520 per dollar in unofficial trading last month before strengthening to 463 last week. That’s still lower than the official rate, which has been around 315 since August. Forward contracts suggest the currency will probably depreciate. Six-month forwards rose 0.9 percent to 378 per dollar by 12:02 p.m. in Lagos.
Emefiele also said:
- Inflows into Nigeria have declined to less than $700 million per month from $3.6 billion in June 2014, while demand for foreign currency is about $4.8 billion
- The central bank will “continue to meet all legitimate transaction-based foreign exchange demands in the market”
- While the ban on the 41 items wasn’t “cast in stone,” calls for a reversal now were wrong given the “new realities of nationalist and populist sentiments sweeping across the world,” including Brexit and the election of Donald Trump as U.S. president
- “I have heard commentators suggest we should follow Egypt’s example and free the naira. What they do not tell you is that following their currency adjustments, inflation today in Egypt is over 30 percent. Is that what we want in Nigeria?”
President Muhammadu Buhari, who has backed Emefiele’s stance on the naira, may reshuffle his cabinet this week and make changes to senior central bank personnel, Lagos-based Punch newspaper reported Sunday, citing an official it didn’t name. Buhari, 74, returned to Nigeria on Saturday after spending seven weeks in the U.K. getting tests for an undisclosed ailment.