L
LequteMan
Guest
CBN governor, Godwin Emefiele, has declined to devalue the naira, despite extreme pressures from several bodies in and out of the country.
The apex bank governor refused to devalue because according to him, the black market rates represents a tiny fraction of the market and should be relied upon as a benchmark for the real value of the Naira.
According to Nairametrics, this has always been the position of the CBN governor. He'd 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.
Here's 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,"
This scenario at the time bears a striking similarity to what's currently on ground. Nigeria's 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 the reason Emefiele gave for the devaluation.
"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."
The apex bank governor refused to devalue because according to him, the black market rates represents a tiny fraction of the market and should be relied upon as a benchmark for the real value of the Naira.
According to Nairametrics, this has always been the position of the CBN governor. He'd 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.
Here's 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,"
This scenario at the time bears a striking similarity to what's currently on ground. Nigeria's 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 the reason Emefiele gave for the devaluation.
"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."
