The Central Bank of Nigeria (CBN) on Tuesday abandoned its naira peg to the dollar in favour of a flexible currency regime, a policy U-turn designed to boost local manufacturing and exports and stave off a recession.
CBN Governor, Godwin Emefiele, however, sparked confusion by declining to say how the shift from a naira fixed at 197 to the dollar would be implemented.
Details would be published in a few days, he said after a Monetary Policy Committee (MPC) meeting in the capital, Abuja.
“The MPC voted unanimously to adopt a flexible exchange rate policy to restore the automatic adjustment properties of the exchange rate,” he told a news conference.
In what many term prelude to devaluation of the naira, Emefiele said the CBN would “retain a small window for funding critical transactions”. Again, he sowed confusion by saying details would only be released “at the appropriate time”.
Analysts questioned the wisdom of announcing a major shift in policy without spelling out how to implement it.
“Any real liberalisation would be accompanied by some tightening, as a stabilisation measure, at least in the short term,” said Razia Khan, chief Africa economist at Standard Chartered in London.
“That does not appear to have been considered. This is at best curious, at worst very worrying.”
“We need to know the details before we get excited,” said Alan Cameron, an economist at advisory firm Exotix. “It’s a positive step for Nigeria, but we don’t know just how positive it is yet.”
The apex bank’s de facto peg of N197 per dollar had become increasingly unsustainable due to a shortage of hard currency stemming from the slump in oil revenues.
Africa’s top crude producer relies on oil for nearly three-quarters of its government revenue and more than 90 percent of foreign exchange.
On the black market, the naira is trading 40 percent below the official rate as manufacturers and imports pay massive premiums to avoid hefty official currency curbs now blamed for tipping the economy towards recession.
The dollar-hungry industry and manufacturing sectors shrank 5.5 percent and 7 percent respectively in the first quarter, helping pushing the economy into a 0.4 percent contraction, its worst performance in years.
Tens of thousands of contractors have been laid off as businesses have either closed down or shelved their investment plans.
“Options are very limited,” said Emefiele. “To avoid complicating conditions, the committee decided on the least risky option.”
