By Obinna Chima with agency report

Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, yesterday said that the naira could be allowed to devalue if oil prices and foreign exchange reserves continue to fall and monetary intervention attempts are exhausted.

Reuters quoted Sanusi as making these remarks on CNBC Africa television.

THISDAY reported on Wednesday that Nigeria’s external reserves had been put under pressure as a result of the dwindling oil prices in the international market.

THISDAY checks had yesterday showed that the reserves dipped by $2.3 billion to $32.52 billion as at September 29, compared with the $34.8 billion it stood mid September.

Currency devaluation is a reduction in the value of a currency with respect to other currencies with which that currency can be exchanged.

The banking sector regulator had been pumping United States’ dollars into the market at the bi-weekly auctions to help support the local currency.  But the objective could not be sustained as the value of the local currency has continued to slide at the regulated Wholesale Dutch Auction System (WDAS).

The CBN broke its own target of keeping the naira within + or – 3 per cent of N150 to a dollar again at yesterday’s auction as the local currency closed at N155.40 to a dollar. The value reflected further decline by 81 kobo, compared with the N154.59 to a dollar it stood on Wednesday, last week.

The newspaper’s findings showed that total demand stood at $685 million, far above the total of $400 million offered by the apex bank. The local currency also closed at N162.25 to the dollar at the interbank segment of the forex market.

But Sanusi maintained that there was no change in the apex bank’s forex stability stance for now, but the bank would not support the naira at all costs. The regulator said that a stable exchange rate was crucial for maintaining price stability and attracting foreign investment, adding that the CBN had been raising interest rates for more than a year to curb high inflation and support the naira. 

He explained: “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.

“At the moment, the pressure is coming from a number of sources. There are questions about security; there are questions about the expansionary fiscal position for 2012 and of course there are the international issues.”

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, Reuters said.

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.

“The problem with changing policy is that if the present problem turns out to be temporary, it will be a knee jerk reaction and you are stuck,” Sanusi added.

Source: Thisday