The governor of CBN, Godwin Emefiele, in a letter to the President, said that CBN is “reasonably optimistic” the naira will settle at around N250 to the U.S. dollar after an initial period of weakness following a flotation on Monday.
On Wednesday, Central Bank said it would begin market-driven foreign currency trading next week, abandoning the limit of 197 naira per dollar that it has supported for 16 months.
Foreign investors and economists have called for months for a devaluation as chronic foreign currency shortages choked economic growth and discourage investment.
The naira is expected to fall rapidy when inter-bank trading begins on Monday, but the central bank said it did not have a target for the currency and the price would be “purely” market-driven.
On Thursday, the naira trading in the black market was around 370 to the dollar. Giving the first indication of a target, Governor Godwin Emefiele said in a June 3 letter to Buhari, seen by Reuters that the central bank hopes the naira will eventually trade at around 250 per dollar, a level the president has “approved”.
Emefiele says in the letter,
“I must assure Your Excellency that we are indeed reasonably optimistic that at some point the rate will settle around 250 naira.”
The letter, which briefs Buhari on the foreign exchange plan, says it could take three to four weeks to clear a $4 billion backlog of foreign exchange demand. Buhari has for months said that he does not want the naira to be devalued, but backed a more flexible exchange rate policy when the central bank outlined its plans in May, without elaborating.
The presidency has not commented on the new regime. On Wednesday, Buhari’s spokesman declined to comment when Reuters called. The central bank could not be immediately reached for comment. Africa’s biggest economy, which shrunk by 0.4 percent in the first quarter, faces its worst crisis in decades after the decline in oil prices since 2014 and last year’s introduction of a currency peg, which prompted a large-scale capital flight. With a likely sharp fall for the naira, Nigerian products will become relatively cheap and imports more expensive, which should stimulate the domestic economy but also lift inflation.
Buhari has previously raised concerns about the intense impact that a weaker currency will have on Nigeria’s poor. Nigeria, Africa’s largest crude exporter, has resisted devaluing its currency for more than a year despite other major oil producers, including Russia, Kazakhstan and Angola, allowing currencies to fall after crude prices collapsed.