Foreign investors and economists have
called for months for a devaluation as
chronic foreign currency shortages choked
economic growth and deterred investment.
The naira is expected to fall sharply when
inter-bank trading begins on Monday, but
the central bank said it did not have a
target for the currency and the price
would be “purely” market-driven. The
naira was trading on the black market at
around 370 to the dollar on Thursday.
Giving the first indication of a target,
Governor Godwin Emefiele said in a June
3 letter to Buhari — seen by Reuters —
that the central bank hopes the naira will
eventually trade at around 250 per dollar,
a level the president has “approved”.
“I must assure Your Excellency that we
are indeed reasonably optimistic that at
some point the rate will settle around 250
naira,” Emefiele says in the letter.
The letter, which briefs Buhari on the
foreign exchange plan announced on
Wednesday, says it could take three to
four weeks to clear a $4 billion backlog of
foreign exchange demand. Buhari has for
months said that he does not want the
naira to be devalued, but backed a more
flexible exchange rate policy when the
central bank outlined its plans in May,
without elaborating.
The presidency has not commented on the
new regime, with Buhari’s spokesman
declining to comment when Reuters called
on Wednesday. The central bank could not
be immediately reached for comment.
Africa’s biggest economy, which
contracted by 0.4 percent in the first
quarter, faces its worst crisis in decades
after the decline in oil prices since 2014
and last year’s introduction of a currency
peg, which prompted a large-scale capital
flight.
With a likely sharp fall for the naira,
Nigerian products will become relatively
cheap and imports more expensive, which
should stimulate the domestic economy
but also lift inflation. Buhari has
previously raised concerns about the
inflationary impact that a weaker currency
will have on Nigeria’s poor. Nigeria,
Africa’s largest crude exporter, has
resisted devaluing its currency for more
than a year despite other major oil
producers, including Russia, Kazakhstan
and Angola, allowing currencies to fall
after crude prices collapsed.
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