The naira has come under pressure in the last one few weeks as oil prices continue to hit new lows. This has made the CBN intervene on several occasions by pumping dollars in the system in a bid to defend the naira. However, this effort has limits and if the pressure continues it may just devalue the naira. The Deputy Governor of the CBN Yemi Alade was asked about this in an article in the Punch where she suggest devaluation after all may just happen sooner rather than later. This is an excerpt of the article;
We would continue to defend the currency, we have always said that,” Alade told Reuters by telephone, adding that the bank was comfortable with level of the country’s foreign reserves of around $38bn.
Asked how far the bank was willing to go to defend the naira, she said: “The markets would dictate that.”
She said that the last time the country devalued its currency, oil prices were lower than now, even though the price is declining.
“At the last time we did that (devalued), we didn’t have the kind of oil prices that we have now, so we are still comfortable,” Alade said.
Gleaning from above, the trigger might just be falling oil prices dropping further below say $70, the market reaction and the threat of a declining foreign reserve. These are all not far fetched and may occur sooner rather than late. Many feel devaluation is inevitable and may not occur till after the election. But that’s shying away from reality. If oil prices continue to fall and our reserves get depleted faster than required the CBN will have no choice but to devalue. Election or not.
Get the full article in the Punch
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