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Mixed reaction to latest moves to rescue Naira

19 February 2015, 12:31

Abuja - Analysts have welcomed latest moves by the Central Bank of Nigeria (CBN) to retain the value of the Naira amid stiff competition from major global currencies but remain skeptical of the impact these would have on curbing the former’s decline.

In an unprecedented move on Wednesday, the central bank pronounced the RDAS/WDAS (Retail Dutch Auction System/Wholesale Dutch Auction System) window closed with immediate effect.

“This serves as an effective devaluation of the Naira, following a period of sustained divergence between the interbank and RDAS rates," Rand Merchant Bank, the global market watcher, explained on Thursday..

"We had argued for more strenuous measures to be imposed in our note titled “There she goes”, but remain skeptical of the CBN’s ability to provide sustained support to the interbank market given its current level of international reserves,”

After Wednesday’s decision all foreign exchange demand will now be routed through the interbank market, suggesting that the Naira will eventually be determined by forces of supply and demand.

Also read: CBN may devalue naira again

The CBN will sell United States dollars to the interbank market at a set rate of US$/NGN198 to ensure liquidity was readily available to meet legitimate demand.

“While the central bank will apply a greater degree of caution in the provision of US dollar funds, we believe that it cannot service the interbank market indefinitely and continue to favour a more adaptable exchange rate agreement,” an analyst said.

The local currency has been on a freefall against the United States greenback largely owing to the drop in oil prices globally.

This has been attributed to the reduction in demand of the commodity.

Africa’s biggest economy is viewed as overly reliant on oil, sparking calls to diversify.

- CAJ News

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