Godwin Emefiele, governor, Central Bank of Nigeria (CBN), has reiterated that the naira is appropriately priced. He said this in an interview with CNBC Africa on Thursday, a day after the currency tumbled to all time lows. Emefiele insisted that Nigeria would not leave the currency to trade freely in the open market.
“Nigeria is currently on a managed float. It is not appropriate at this time to consider trading the naira very freely as some people have advocated. Nigeria is a highly import dependent economy. “When it is allowed to float in an import dependent economy, what that would mean is that the exchange rate will spiral out of control”.
The CBN, therefore, has to step in from time to time to support the currency, he said. Emefiele explained that while the CBN has moved most dollar demand to the interbank market, it still meets dollar demand for raw materials, PMS and kerosene imports at the official rate to keep inflation on check.
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Raw material and PMS dollar demand account for between 10 percent and 15 percent of total dollar demand, while the bulk of other transactions have been moved to the interbank market. “We need to understand that if we are providing subsidies for PMS, having to adjust it to the pricing we see today will further increase the landing cost of PMS”, Emefiele said.
“There is a need for us to give support to importers of raw materials that will add value and create employment and improve productivity in the economy”. Emefiele also noted that backward integration would help reduce the pressure on the exchange rate eventually.
The interbank market, where 80 percent of forex transactions are carried out now trades at N206/$, while the parallel market is pricing the naira at about $210/$. “Effectively, the naira has been adjusted”, remarked Bismarck Rewane, CEO, Financial Derivatives Company. Brent crude gained 3.8 percent, trading at $56 a barrel as at the time of writing.
The CBN has struggled to support the currency, as forex receipts from crude oil, which Nigeria depends on for about 90 percent of export earnings dwindled on account of reduced prices and a supply glut. In a rare commentary on the political landscape, 6 weeks to the elections, Emefiele told investors that there was no cause for alarm. “The Nigerian economy is very resilient”, he said. “We have been here be- fore, with elections in 1999, 2003, 2009, and 2011. This time will be no different. The elections will hold, and Nigeria will remain”.
