President Muhammadu Buhari said, Wednesday, in Paris, France, that he opposed a further weakening of the naira and openly endorsed the Central Bank of Nigeria, CBN’s policy of restricting foreign-exchange trading. The President, who was answering questions in an interview with France 24 broadcast, said: “I do not think it is healthy for us to get the naira devalued. The Central Bank is providing ample foreign exchange to essential services, industries.”
CBN has been under pressure from foreign investors to further devalue the naira. Nigeria had, last year, devalued the naira to N197 to the dollar from N160. The naira was further adjusted slightly in July to N199 to the dollar. As a result of the continued pressure on the naira, CBN introduced some measures to curb the excess demand for foreign exchange. This, however, did not go down well with some of the foreign investors. After the crash of oil prices last year, the CBN Governor, Mr. Godwin Emefiele, reacted to the naira’s drop to a record low in February by extending trading curbs and introducing bans on purchases of dollars by 41 items, which CBN said cannot access foreign exchange from the Nigeria market.
The naira has since stabilized at the inter-bank market, but foreign investors, local businesses and even some members of CBN Monetary Policy Committee have complained that the naira is overvalued. Reacting to JPMorgan’s decision, CBN’s Debt Management Office and the Ministry of Finance, in a joint statement, said: “It will be recalled that Nigeria was included in the index in October 2012, based on the existence of an active domestic market for FGN Bonds supported by a Two-Way Quote System, dedicated market makers and diverse investors.
“However, in January 2015, JP Morgan placed Nigeria on an Index Watch as a result of their concerns in the operations of our Foreign Exchange, FX, market, namely lack of liquidity for transactions, lack of transparency in the determination of the exchange rate and lack of a fully functional two-way FX market. In our continuous bid to strengthen the Nigerian financial market and enhance our status as a preferred destination for investors, we took measures to improve the market."
Despite the fact that oil prices have fallen by nearly 60 percent in one year, which should expectedly reduce the amount of liquidity in the market, CBN ensured that all genuine and effective demands were met, especially those from foreign investors. “On transparency, CBN mandated that all FX transactions were posted online in the Reuters Trading Platform so that all stakeholders can easily verify all transactions in the market. In addition, the official FX window at CBN were closed to ensure a level-playing field in the pricing of foreign exchange. It is important to note that a functional two-way FX market already exists in Nigeria.
“However, given the high propensity for speculation, round tripping, and rent-seeking in the market, it became imperative that participants are not allowed to simply trade currencies, but are only in the market to fulfill genuine customer demands to pay for eligible imports and other transactions. In the light of this, we introduced an order-based, two-way FX market, which has resulted in the stability of the exchange rate in the interbank market over the past seven months and largely eliminated speculators from the market. Despite these positive outcomes, JPMorgan would prefer that we remove this rule, even though it is obvious that doing so would lead to an indeterminate depreciation of the naira. With dwindling oil prices, we believe that an order-based two-way market best serves Nigeria’s interest at the moment. While we would continue to ensure that there is liquidity and transparency in the market, we would like to note that the market for FGN Bonds remains strong and active due, primarily, to the strength and diversity of the domestic investor base. For the avoidance of doubt, the Federal Government sees Nigeria and the interest of Nigerians as paramount. It will, therefore, only continue to take economic decisions that will impact positively in the lives of all Nigerians.”
President Buhari also said in the interview that markets were not being harmed by the delay in ministerial appointments, which he says will happen by the end of the month. He said: “Work is being done by technocrats; they are there and they provide the continuity.” The naira remained little changed at 199.05 per dollar on the inter-bank market at in Lagos.