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Don’t devalue naira further if it stables at N300/dollar—Sanusi warns

His Royal Highness, the Emir of Kano and former governor of the Central Bank of Nigeria (CBN), Muhammad Sanusi II, has warned the monetary and fiscal policy makers not to devalue the naira any further should it stabilize at N300 to a dollar.

Speaking weekend in Abuja, the monarch said “All the CBN needs to do is to make the Bureau De Change  (BDC) segment of the market liquid, and watch the gap between official and parallel market close, with investors bringing in more forex”.

In his submission, Sanusi argued that “My public position is that if the Central Bank can improve on its management of foreign exchange, provide liquidity to the parallel market, get a convergence between the BDC rate and the official rate, also keep these yields where they are, that will help to attract the foreign exchange that we need to stabilize in the short term”.

“While I think the naira is undervalued, certainly if you look at the purchasing power parity, when you look at the nominal exchange rates, when you look at the rate of inflation, it stands to agree that even at 300, the naira will be slightly undervalued.

Going forward, Emir Sanusi noted that “Fundamentally, I think the exchange rate is where it’s supposed to be. What is obviously the problem, is not the fundamentals, it is the managing of the regime, so that people will have the confidence that we are indeed having a flexible exchange regime and also that we are closing the gap between the official and the parallel market rates, and that could only happen when we have liquidity within that segment.”

He said the central bank decided not to sell forex to BDCs, adding that the segment of the market where the naira is trading at 470 to 490  is a very shallow segment, which however has impact on the entire market.

“What you said is for N470-490 to the dollar might be a very small volume in transactions, but it does have the impact of creating the impression that it creates a huge gap.

“So if we could just provide liquidity to that segment and close that gap it will help a lot. But in terms of where the naira is today, there is no need for any further devaluation as far as the fundamentals are concerned but we have to take steps to address confidence.

“We spent one year defending an exchange rate regime that everybody knew would not work. It has been tried by Chavez in Venezuela, tried by Mugabe in Zimbabwe and Rawlings in Ghana.

He disagreed that what works in these climes can’t work here because of the peculiarities of the Nigerian economy.