The Central Bank of Nigeria (CBN) has insisted that it would resist speculative attack on the Naira.
Fielding questions from journalists after the Monthly Monetary Policy Committee meeting on Tuesday in Abuja, CBN Governor, Godwin Emefiele said that the bank’s action became necessary following some “uncomfortable tendencies” in the market.
Emefiele said that the decision of JP Morgan to exclude Nigeria from the index was done in error as the Apex bank had directed banks to reduce their Net Opening Position (NOP) from 10 to 0 due to volatility in the market.
Rating agency, JP Morgan had earlier this week rated Nigeria negative citing the downward review of the Net Open Position (NOP) by the banks as a reason for its action. The rating agency noted that reviewing downward its NOP is a sign that Nigeria was e-liquid.
Emefiele noted that during the period the NOP was reduced, there were pressures on the Naira.
“We thought that we could not allow that to continue because we also discovered some uncomfortable tendencies in the market which portends that there were some speculative attack on the currency. That was the reason we took that decision,” he said.
The Apex Bank boss further stressed that ” we have a responsibility in line with our core mandate to defend the currency and exchange rate of the Naira. We are monitoring the market to the extent that we feel the interbank market will continue to support trading activities of both Nigerians and foreign investors.
“At anytime we discover that the market is unable to absolve or provide the liquidity that is needed that the Central Bank will come up and intervene in the market for legitimate transaction to go on. Adding that “we have a mandate to ensure that transaction that go on in the market are legitimate transaction.”
Emefiele assured that the Apex bank is looking into the issues and will soon engage the JP Morgan Index team to prove the level of liquidity in the market noting that exclusion from the index would negatively impact the country’s economy.
“We are committed to remaining in the Index, we will do everything possible to remain on the Index because we know the adverse impact the exclusion from the Index will cost the country.
He said that despite the JP Morgan’s action, “what is paramount in our mind is that the external reserves, the exchange rate policy must be defended. We will ensure that economic activities continue to take place, anybody who needs foreign exchange to transaction business in the country will be allowed to do so for legitimate purposes.”
While saying that any further devaluation will be subject to review, the CBN helmsman noted that the market has been positive since the Naira was devaluated in November.
He added that the Naira is appropriately priced therefore there was no need for anybody to worry about further devaluation.
On the widening gap between the RDAS and the parallel market, Apex Bank Governor asserted that the Bank was doing its best to see how it can intervene in the market.
“We know that allowing the gap creates certain opportunities for certain people. But we will continue because we don’t want the exchange rate to spiral out of control and that is why at the appropriate time certain actions will be taken.”