Nigeria Vows to Retain Currency Control Even as Reserves Bleed

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Nigeria’s central bank is in no mood to loosen its grip on the naira.

Governor Godwin Emefiele said there was no reason to fret over a fall in foreign reserves to their lowest level in almost two years and vowed to continue defending the currency.

“A marginal drop in reserves below $40 billion is not enough to create fears in any mind,” Emefiele said to reporters Tuesday in Abuja, the capital, after the central bank held its base rate at 13.5%. “Our policy of sustaining the stable foreign-exchange regime will continue.”

The bank has burned through $5.3 billion of reserves — about 12% of the total — since early July to meet demand for foreign exchange from importers in Africa’s biggest oil producer. It has also backed the government’s closure of land borders to stem smuggling of food into Nigeria and kept yields on short-term bonds high to encourage portfolio inflows.

The central bank’s measures have ensured that the naira has barely budged in the past two years. It has weakened 0.6% against the dollar in that period, making it one of Africa’s most stable currencies.

Emefiele has consistently denied the central bank pegs the naira and says its value is determined by the market.

Even so, several analysts have said it’s now overvalued at its current rate of 361 per dollar. Fair value is around 22% weaker at 464, Renaissance Capital said in a report last month. Non-deliverable forward contracts maturing in a year trade at 394.5.

Emefiele recently told investors that he would only consider a devaluation if reserves dropped below $30 billion, according to a central bank publication released last week.

The governor, who was appointed for a second five-year term earlier this year, and President Muhammadu Buhari have long insisted that a stable naira is needed to stop inflation, which stands at 11.6%, from accelerating.

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