It’s just over one month since the CBN devalued the Naira and increased lending rate in a drastic attempt at defending the naira. Most analysts saw this as a very bold move by the CBN Governor and hoped the naira slide will bottom out. The CBN then followed this up with a string of circulars that it hoped will stop the speculations we are seeing. Well, its one month down the line and the Naira is still sliding. In fact, it has mostly traded above N180 at the Interbank and crossed N190 at the black market, a huge downside to the CBN’s preferred band of plus or minus 5% either side of N168.
Looking at the records of the CBN, it has now spent about $2billion defending the Naira since it devalued. According to data from the CBN, as at November 26th just a day after the MPC meeting, it had about $36.9billion in external reserves. The data also reveals that as at December 23rd the reserves had dropped to $34.8 billion representing a $2billion decline. To put it into better perspective, our external reserves was $38.4billion as at November 2nd and was $37billion on November 24th just before the MPC decision was announced, representing a $1.4billion reduction. As such, we have now spent $400million more defending the Naira within the same period.
Can the CBN continue in this trend? The chart above suggest things don’t look really good which probably signifies the need for harsher policies issued by the CBN. The recent circulars restricting dollar holdings from banks and BDC as well as those limiting the period for utilization of forex by customers was akin to capital controls by some analysts. It is unlikely the CBN will loosen controls at this stage so I expect more tightening if the reserved continue to deplete.