Naira, Nigeria’s currency, known for a while for its stability, has experienced a level of weakness that caused panic at the Forex market and the Central Bank of Nigeria (CBN). The quick depreciation of naira must be a headache to the Nigerian financial policy makers that wasted no time in reassuring the market that Nigeria has an adequate war chest to defend the naira from aggressive speculators.
At the last session of Forex market naira was traded at around 164.50 and lately at 161.85 against US dollar. For the record, naira has maintained stability at a level hovering around 155-160 against US dollar. Therefore, the concern is real and currency warriors at CBN are ready to fight back and defend naira.
Charlie Robertson, a London based expert and analyst at Renaissance Capital, wrote that “Much of the existing investor base, Nigerian and foreign, and the main companies we saw at our Africa conference in Lagos this week, are concerned about currency weakness, with many expecting a 5-10% depreciation this year, to roughly 167-175/$.”
Yes, Robertson is probably right, but the anticipating 5-10 percent depreciation may be too much. Somewhere at 2-3 percent depreciation is reasonable but that is not going to occur and happen because CBN will not give in to it nor is Nigeria willing to allow naira to slip into such a weakened currency.
One thing going for CBN is the moderately accumulated foreign reserve which stood at $42 billion. Acting CBN governor, Sarah Alade, was emboldened in reminding the speculators and currency traders that Nigeria has the means and courage to intervene on behalf of the naira.
Such statement may psychologically impact the market positively and scare away speculators that will realise that Nigeria is ready to intervene if need be. Naira may be attracting currency speculators for many reasons good and bad. Naira has the world looking at it more positively because Nigeria has been recognised as a strong emerging market. In addition, the country’s financial house and fundamentals are relatively stable including its macroeconomics.
The downside maybe that currency speculators probably feel some signs of weakness and they move in, but Nigeria with $42 billion in foreign reserves can adequately fend them off and defend naira.
The last thing Nigeria would do at the moment is to devalue the naira because CBN may believe that it is too expensive to defend the naira. But devaluation of naira will send a wrong message to our trading partners and may even trigger a currency war. Judging from the reaction and reassuring statement coming from CBN that is far-fetched.
Emeka Chiakwelu,
Abuja