The Governor of the Central Bank of Nigeria, Godwin Emefiele, has listed the conditions that could warrant him to devalue naira. He made this disclosure at the African Investors’ Conference (AIC) which took place in London from June 25 to 27.

The event presented an opportunity for Mr. Emefiele to convince dismayed foreign investors to return to Nigeria. As expected, investors wanted to know if the exchange rate between the naira and the dollar would be devalued. Most investors believed the naira was somewhat overvalued against the dollar and called for corrective measures.

Emefiele’s reaction: The Emperor as he is often called responded to the question in his typical uncanny fashion.

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According to him, the CBN could consider devaluing the exchange rate if the the price of crude falls to between $50-$45 (currently $75).

He also mentioned that if this happens and the external drops to between $30 billion and $25 billion, they could consider moving on the exchange rate.

He, however, stressed that even if they were to devalue the naira, it would be a rather slow adjustment rather than a sudden movement.

Mr. Emefiele also voiced his concern about the threat of Shale, claiming that this could be a factor to consider in deciding whether to devalue the naira or not.

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What this means: Market analysts have for weeks mooted plans of an impending devaluation of the naira. They often point to the rising inflation rate, declining oil revenues and lower non-oil dollar inflows as a possible factor. But with Emefiele’s laying out his consideration for a likely devaluation, the market now has a clear path to hedging their bets against holding the naira.

• For the average Nigerian, the message here is to watch the price of oil, Nigeria’s external reserves (currently at $45 billion) as an indication of when exchange rate could be devalued.
• Once these numbers hit this benchmark, you are probably better off selling down fast.
• This information could also dissuade speculators from short term hoarding of Forex in anticipation of a devaluation.

One more question: The Governor also touched on other exchange rate issues such as the operation of the Investor Exporter Window.

He was asked why we have multiple exchange rates but he begged the question by claiming that what exist in Nigeria are multiple windows and not multiple rates. The investor further explained his point that all market participants should be using the same rates and said the oil companies have different rates.

Finally, Emefiele responded to the recent report about the CBN “floating the naira” after mentioning on its website that the exchange rate was “market-determined”. According to him, he wanted the market to gravitate towards the I&E window, encouraging anyone who wanted to buy dollars at market-determined rates to go there.

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