The Managing Director and Chief Executive Officer of First Bank of Nigeria Limited, Bisi Onasanya, has said that Nigeria needs to let the naira devalue as foreign-exchange trading restrictions used to keep the currency stable are starting to harm growth in Africa’s largest economy.
Onasanya who spoke during an interview at a Bloomberg conference at the Nigerian Stock Exchange in Lagos Thursday, said that “People just don’t believe the Central Bank of Nigeria (CBN) has what it takes to sustain the exchange rate at the present level.
“The market needs to reopen. You cannot peg the naira at a level that the whole world knows is unrealistic.”
Faced with a plunge in the price of oil, the source of 90 percent of Nigeria’s exports, the CBN has imposed currency-trading restrictions to protect the naira, which has weakened 18 percent against the dollar in the past year. The curbs have led the unit to stabilise at an average of 198.85 per dollar since the end of March.
The Governor of CBN, Godwin Emefiele and other officials of the Bank voiced their concern at a meeting with lenders last week that removing restrictions imposed since the last three months of 2014 may trigger a surge in demand for dollars, according to a source at the meeting.
The “fear” of further devaluation is driving the central bank’s policies and the current situation can’t be sustained, Onasanya said.
The naira’s exchange rate would probably be N210 per dollar, plus or minus two percent, if more trading was allowed, he added.
“We are in a situation where Nigerian banks are shopping for foreign-exchange in the international market,” Onasanya, who will retire at the end of this year, said on a panel before the interview. “We need to bite the bullet and move on, or there will be repercussions over the longterm,” he added.
Portfolio investors including Aberdeen Asset Management Plc. and Investec Asset Management have been put off buying assets in the country until there’s a devaluation. That’s a further drag on an economy which growth the International Monetary Fund (IMF) estimates will slow to 4.8 percent this year, about half the rate of the past 15 years.
The CBN, also this week, banned importers from using the foreign-exchange market for some goods as it seeks to conserve external reserves.
Forty items ranging from private jets to rice, wheelbarrows and Indian incense are covered by the edict. The regulator also stopped Nigerians from using hard currency from the interbank market to buy Eurobonds and foreign shares.
Emefiele said on Wednesday that Nigeria can’t continue to be an import-dependent economy, spending an average of N1.3 trillion ($6.5 billion) a year bringing rice, fish, wheat and sugar into the country.
The nation’s foreign-currency reserves have declined 27 percent to $29 billion since the end of last September.
The bans may be “positive in the long run” if they stimulate local production, said Onasanya. Yet they “will push demand into the black market,” he noted.
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