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| The Naira and dollar |
The bank adjusted the rate at which it sold the United States dollar from N197 to N196.95, Reuters reported.
Prior to Thursday’s action, the rate had been oscillating between N197 and N199 for a few months.
Economic and financial analysts said the action might indicate that the CBN was beginning to think about how to loosen its currency regime.
They noted that the change was too small to be called a revaluation, particularly in the face of dwindling foreign reserves.
The naira had traded on thin volumes at 198.95 to the dollar on the interbank market on Thursday, before two large sales totalling $36.4m were done at N196.95 towards the close of the forex market, foreign exchange dealers said.
The dealers attributed the sale to the central bank. The naira is trading between 215 and 218 against the dollar at the parallel market.
One economist said 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,” an analyst at South Africa’s NKC Independent Economists, Cobus de Hart, said.
The CBN, however, described Thursday’s rate movement 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,” the CBN spokesman, Ibrahim Muazu, told Reuters.
The Head, Investment and Research, Afrinvest West Africa Limited, an investment research and advisory firm, Mr. Ayodeji Ebo, said the 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.
A currency strategist, who chose to speak under the condition of anonymity, said the adjustment was too small to cause any change in the market.
“It is just about five kobo difference. That is not much. Nothing has changed in the market really,” the analyst 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 per cent from a year ago as the central bank burns cash to defend the local currency.
The naira has lost 8.5 per cent 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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