The Governor of the Central Bank has vehemently refused to devalue the naira claiming that the black market rates represents a tiny fraction of the market and should not be relied upon as a benchmark for the real value of the Naira.
For those who have just started following the CBN Governor’s snarls about calls to devalue, you might be allowed to believe this has always been his position. The Governor devalued the naira twice in November of 2014 and in January 2015. The reasons he gave back then for agreeing to devalue is quite astonishing considering that things haven’t actually improved.
First was what he said in the monetary policy communique of the CBN’s monetary policy meeting of November 2014.
Further pressure on the external reserves and domestic monetary policy is due to the US Fed’s decision to normalize its monetary policy by stopping the massive injection of liquidity into the global economy. The resultant repatriation of capital from domestic economy particularly with relatively moderate level of market rates intensifies the pressure on the domestic currency and the external reserves. With the CBN’s ability to defend the naira and sustain the stability of the naira exchange rate being constrained by the depleting reserves, a widening arbitrage premium opened up at the foreign exchange market between the rDAS exchange rate and the rates in the other segments
The above scenario at the time bears a striking similarity to what currently obtains. The external reserves is under pressure, there is huge arbitrage opportunity as the difference between the official and parallel market rate continues to widen.
Here is how he outlined his decision to devalue;
A gradual realignment of the official rDAS exchange rate with the rates in the other segments, reduces the currently attractive premium and discourages arbitrage tendencies in the market; and A lower value of the naira would also make Nigerian exports cheaper, which should encourage other countries to buy more Nigerian goods with a potential for increased job creation in the domestic economy
At the bankers committee meeting soon afterwards he had this to say;
“As we know, one of the bank’s major mandates is to ensure price stability and we believe that without complementary policy actions, developments in the foreign exchange market would reverse the fragile gains we have recorded recently in our fight against inflation,”
For many analysts with insider knowledge they opine that economic polices are currently being dictated by the President rather than the CBN. If he had the level of freedom he had under GEJ, he probably would have devalued long ago,