Oct 6, 2011 – CBN May Allow Depreciation of The Nigerian Naira Says Lamido Sanusi
The Central Bank of Nigeria (CBN) Governor, Lamido Sanusi, said on Wednesday that the naira could be allowed to devalue if oil prices and foreign exchange reserves continue to fall and monetary intervention attempts are exhausted.
CBN has been pumping U.S. dollars into the market at bi-weekly auctions to help support the local currency but without any sustained success.
According to Sanusi, there was no change in the foreign exchange stability stance for now but the bank would not support the naira at all costs.
“Certainly if we do continue to see threats to oil price, if we do continue to see threats to the reserve position and if we think we have exhausted the limits of monetary intervention, we will have to do that and we will have to announce but if there’s going to be a depreciation, it’s something we want to be in control of and we want to be the ones that will announce it,” he said.
The CBN boss added that at the moment, the pressure is coming from a number of sources as there are questions about security, about the expansionary fiscal position for 2012 and of international issues.
However, CBN broke its own target of keeping the naira within 3 per cent above or below 150 to the U.S. dollar again on Wednesday, after breaching the band for the first time last week, further deepening the naira’s decline.
According to Sanusi, CBN sold $400 million at 155.40 at the bi-weekly auction on Wednesday, short of the $685.37 million demand. The local currency was trading at 162.25 to the dollar in the interbank market, it weakest ever.
By pumping dollars into the system, the CBN is dipping into Nigeria’s foreign reserves, which are built up through the sale of its crude oil LCOc1. Any dip in oil prices due to a slowdown in global economic growth could put pressure on the CBN to stop using oil savings to support the naira.
Foreign exchange reserves fell to $31.7 billion by end-September, the lowest in 13 weeks. Daily Times