The governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has reportedly told investors that the country’s currency is overvalued by 10%. The governor’s remarks, which have been confirmed by two unnamed sources, suggest that the central bank is planning to devalue the naira again.
Another Naira Devaluation Loading
As previously reported by MotleyBloggers.com News, in May 2021, authorities in Nigeria allowed the naira’s exchange rate against the US dollar to drop from a fixed rate of 381 per dollar to the current official rate of 410. This devaluation, which was the third one in less than 18 months, briefly narrowed the gap between the official and the parallel market rate. However, at the time of writing, this gap had widened again.
Nevertheless, as a Reuters report explains, the CBN chief is now expecting to see this gap shrink. According to the report, the governor said: “The spot naira rate of 410-412 per dollar would eventually weaken by 5% to 10%.” Weakening the naira by between 5% to 10% means the CBN is expecting the spot rate of the naira to fluctuate between 430 and 450. Still, this new CBN target remains below the current parallel market exchange rate of 500 for every dollar.
World Bank Calls for Exchange Rate Unification
The report also touches on why Emefiele, who has previously defended the naira’s overvalued exchange rate, is now warming up to the idea of devaluing the local currency. According to the report, another devaluation of the naira may be linked to the World Bank’s call for the unification of Nigeria’s multiple exchange rates. The global lending institution reportedly wants to see “closer parity before the release of a much-needed $1.5 billion budget support loan.”
In addition to the World Bank’s demands, the CBN has faced increased pressure to devalue the naira by businesses that are failing to access the resource via the official channels. This, in turn, leaves the parallel market as their only source for foreign currency.
What do you think of Emefiele’s remarks about the naira’s overvaluation? You can tell us what you think in the comments section below.