The Central Bank of Nigeria, CBN, has made a slight adjustment on its Naira exchange rate peg ahead of the coming weekend.
CBN Spokesman Ibrahim Muazu, made this known yesterday on the bank’s website.
According to Reuters, data obtained from CBN indicated that it had adjusted the rate, at which it sold the United States Dollar from N197 to N196.95.
Prior to the development, the rate had been rising and falling between N197 and N199 for a few months.
Economic and financial analysts believe that the action might indicate that the CBN was beginning to think about how to loosen its currency regime.
The dealers said, noting that the change was too small to be called a revaluation, particularly in the face of dwindling foreign reserves.
The Naira traded on thin volumes at N198.95 to the Dollar on the interbank market on Thursday, before two large sales totalling $36.4 million were done at N196.95, around market close. Dealers attributed the sales to the CBN.
The Naira traded between 215 and 218 against the Dollar at the parallel market.
An analyst at South Africa’s NKC Independent Economists, Cobus de Hart reiterated that the move might suggest that the bank was testing out the market to see whether it was ready for a looser currency regime.
- “Small changes in the rate could possibly allow the central bank to gauge the changes in demand and supply dynamics, which will inform decisions on when and how best to start lifting forex restrictions.”
However, CBN described the move as a simple reflection of the state of Dollar supply in the market.
“We are not fixing rates. The present rate is a reflection of the level of dollar supply in the market,” Muazu noted in an interview with Reuters.
The move by the apex bank has attracted different reactions from analysts and financial experts.
Head, Investment and Research, Afrinvest West Africa Limited, an investment research and advisory firm, Mr. Ayodeji Ebo, however opined that CBN’s action might be linked to the relatively reduced pressure on the external reserves.
- “It is a rate adjustment but it is too small to be called a revaluation. The adjustment is too small to cause any pressure on the Naira. The CBN feels the action will not affect its defence of the Naira,” he said.
Another economist, however, said the move would hurt the country’s precarious forex reserves position.
- “By lowering the central bank rate offered to banks albeit very moderately, the central bank is adding to pressures on forex reserves …equivalent to around 4.9 months of imports,” the Head of Research at Ecobank, Angus Downie, said.
The nation’s external reserves had fallen to $29.4bn as of June 2, down 20.1% from a year ago as the Central Bank burns cash to defend the local currency.
The Naira has lost 8.5% of its value since the start of the year after sharp falls in the price of oil. That forced the central bank into a de facto devaluation and fixing of the exchange rate in February in order to protect its dwindling foreign reserves.
The regulator also banned commercial lenders from re-selling central bank Dollars among themselves, which was an attempt to curb speculation on the Naira.
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