Central Bank of Nigeria, CBN will resist pressure to devalue the naira since it retains ample funds to defend the currency, its spokesman, Ugochukwu Okoroafor has said.
Naira has fallen in recent months, trading outside the CBN’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.
CBN’s spokesman, Okoroafor said by telephone to Reuters 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.