The Central Bank of Nigeria (CBN), this week signalled it would no longer defend the naira as it reduced foreign exchange supply by 19 per cent, prompting the naira to depreciate further in both the official and interbank segment of the market.
Results of the bi-weekly foreign exchange auction held by the apex bank show that while demand fell slightly to $676.5m from $697.29m last week, the CBN reduced the amount sold to $500m from $617.79m sold last week.
On Wednesday, the apex bank sold $250m while demand stood at $342.34m.

Consequently, the official exchange rate rose from N150.45 per dollar last week to N150.56 per dollar on Monday and N150.71 per dollar on Wednesday, indicating a 29 kobo depreciation for the naira.

Last week, the naira appreciated by five kobo at the official segment.

At the interbank market, despite autonomous supply by oil majors, Royal Dutch Shell and Exxon Mobil, the naira depreciated 44.5 kobo between Monday and Wednesday.

From opening rate of N153.355 per dollar, the interbank exchange rate rose progressively to N153.8 on Wednesday.

The CBN, it was gathered, might have decided to peg weekly foreign exchange supply at $500m, hence the reduction in amount sold this week, as against the practice where the apex bank increase amount sold to meet rising demand.

It would be recalled that last year, exchange rates were largely stable during the year courtesy of the apex bank’s stance to keep the official exchange rate at N150 per dollar with a view to defend the naira.

Also recently, the apex bank rejected recommendation of the International Monetary Fund (IMF) which called for devaluation of the naira.

But in October, the CBN governor, Mallam Lamido Sanusi, indicated that the depletion in external reserves is becoming a source of worry to the apex bank and that the policy of defending the naira might be suspended.

In an interview with Reuters Insider on the sidelines of the Annual meetings of IMF/World Bank board of Governors in Washington, he said, “The current exchange rate is not a level that needs to be maintained at all costs.

“My own view is that exchange rates have multiple equilibria, and equilibrium exchange rates will depend on what we see as the long-term sustainability of the reserve positions.”

He further said that “we do believe we can maintain this range (of exchange rate),” but added that replenishing the reserve level will depend to a significant degree on the level of spending by the government.

The implication of Sanusi’s statement was that, should the reserves continue to fall due to spending by government, the apex bank will have no option that to allow the naira depreciate.