CBN fails to clarify new exchange rate policy

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The Central Bank of Nigeria has failed to dispel uncertainty over the implementation of the flexible exchange rate policy that will lead to the abandonment of the naira peg, bankers said on Thursday.

A meeting between the CBN Governor, Godwin Emefiele, and local currency traders under the aegis of the Financial Market Dealers Association on Wednesday to discuss the policy did not yield the desired result, according to a report by Reuters.

The central bank announced last week plans to abandon the naira’s 15-month peg to the dollar, which has overvalued the Nigerian currency, harmed investments and caused the economy to contract.

However, the bank has yet to clarify how the new policy would work, spooking foreign investors, long worried about getting caught in the middle of a currency devaluation.

“We are unlikely to get anything in the next two to three weeks. I don’t think the guidelines are ready. The reality is that he (the governor) does not understand the meaning of signals,” said one senior banker, speaking on condition of anonymity.

“By not coming out (with the details) the governor has shown he doesn’t believe the policy. There is the risk the policy could be reversed,” the senior banker added.

However, the CBN said on Thursday that it would issue the guidelines for the flexible exchange rate policy at the “appropriate time.”

Responding to enquiries by our correspondent, the Acting Director, Corporate Communications Department, CBN, Mr. Isaac Okoroafor, said the guideline would soon be released by the apex bank.

“When we are ready, we will release the guideline. Be rest assured that the guideline on the flexible exchange rate policy will be released at the appropriate time by the CBN,” he said and declined to make further comments.

Dollar deals dried up on the interbank market on Thursday as investors stayed on the sidelines, dealers said, in a sign of the continued uncertainty created by the new policy.

The stock market posted its biggest daily decline in 16 months this week as investors waiting for clarity sold shares. The main index gained 1.02 per cent on Thursday, clawing back some losses.

Analysts at DaMina Advisors said the delay could cause the central bank to backtrack as it tried to reconcile the new policy with President Muhammadu Buhari’s vow not to devalue the naira.

The President has for months rejected calls to devalue the naira. During his Democracy Day speech on Sunday, he backed the central bank’s flexible policy on the currency but said he was still against a devaluation.

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