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CBN's rejection of naira devaluation worries financial house

28 January 2016, 06:15

Abuja - An international financial house has expressed worry at the unanimous decision by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) against devaluing the local currency.

On Tuesday, the CBN’s MPC retained its policy rate and liquidity ratios and, more worryingly, according to Rand Merchant Bank (RMB), the Naira at
199 to the United States Dollar despite rapidly weakening economic fundamentals.

In defending this position, RMB noted CBN Governor Godwin Emefiele seemed to avoid making the link between the effects of capping the Naira and the resultant effects of growing inflation and the liquidity challenges.

Also read: CBN rejects Naira devaluation

“Instead, there was a spirited call to banks to do their part in alleviating the liquidity challenge,” the bank said on Wednesday.

“The CBN’s appeal for monetary and fiscal coordination is misplaced in the current environment.”

RMB said fiscal adjustments were only likely to take hold by the end of 2016, leaving the CBN in a precarious position as it struggles to defend the value of naira in the face of growing balance of payments constraints.

The bank said the currency risk is what they believed would keep investors on the sidelines as evidence of Naira overvaluation was becoming more apparent.

“The parallel market rate indicates that the naira should be trading near the 300 mark to the dollar.”

- CAJ News

Tags cbn nigeria

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