Nigeria cbank to buck pressure to devalue naira -spokesman

By Chijioke Ohuocha

LAGOS (Reuters) - Nigeria's central bank will resist pressure to devalue the naira since it retains ample funds to defend the currency, a spokesman said on Tuesday, and its governor is expected to stay the course until his term is up in 10 months.

Nigeria's naira has fallen in recent months, trading outside the central bank's target band of 150-160 naira to the U.S. dollar since June, initially due to foreign investors booking profits on their naira assets, and on importers buying dollars.

Central bank spokesman Ugochukwu Okoroafor said by telephone that the institution remained committed to the band.

"We have the resources to meet demand. We are still determined to keep within that band," he said on Monday.

But a similar naira weakness, partly caused by excessive spending prior to 2011 national elections, forced the central bank to lower the target band from 145-155 naira to the dollar in November that year, after months of struggling to prop it up.

Pressure on the currency of Africa's second biggest economy will worsen next year as elections loom again in 2015 - traditionally at a time when government expenditure becomes very loose, pumping excess liquidity into the banking system.

The unit has hovered around the 162-163 level in recent months, on strong demand for dollars. It touched a 20-month low of 163.70 naira to the dollar last week.

It closed at 163.10 naira to the dollar on Monday, after it became clear the central bank would not intervene again to prop it up. By 0910 GMT on Tuesday it had rebounded to 162.90.

"We believe that the probability of (moving the trading band) is slim in the coming months," said Gaimin Nonyane, an economist at Ecobank, adding that the bank had ample funds.

"Such a move would ... increase inflationary pressures. Given the central bank's commitment to promoting price ... stability, we think the current rate ... will be maintained."

Central bank governor Lamido Sanusi has repeatedly warned that excessive election spending poses an inflation risk that he is ready to counter with tight monetary policy.

Analysts expect Sanusi will stick to that path until his planned departure next July when his five-year term expires.


"The central bank will continue to defend exchange rate stability ... as long as governor Sanusi remains in charge," said Standard Bank's Samir Gadio.

Sanusi has spent billions of dollars of foreign reserves over the past months in keeping the naira, which has lost 4.6 percent since the year, within its target corridor.

But Nigerian foreign exchange reserves stood at $46.85 billion by August 29, down only 0.23 percent month-on-month from July, so they are not being rapidly depleted.

"Nothing about the central bank's recent guidance or behaviour suggests that is about to allow a devaluation of the naira," said Alan Cameron, economist at CSL Stockbrokers.

The bank tightened liquidity significantly in July, slapping a 50 percent reserve requirement on public sector deposits, up from 12 percent previously. That sucked $1 trillion naira out of the banking system and although the effect on the naira was shortlived, it showed the lengths to which the bank will go.

Another factor, said Charles Robertson, economist at Renaissance Capital, was that pressure on emerging market currencies generally could subside in the coming weeks, so the naira may start to recover all by itself.

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