The Central Bank of Nigeria (CBN) has declared that it will resist pressure to devalue the naira as it retains ample funds to defend the currency.
Speaking in an interview with Reuters in London, the Deputy Governor, Financial System Stability, CBN, Dr. Kingsley Moghalu, said there were no plans to change the exchange rate band of the naira.
"We are comfortable with the band as it is currently – we do not have any intention of doing anything spectacular," he said.
Also, the Director, Corporate Communications, CBN, Mr. Ugochukwu Okoroafor, maintained the bank’s Governor, Mallam Sanusi Lamido Sanusi, was expected to stay the course in his defence of the nation’s currency until the end of his tenure in 10 months.
The naira had fallen in recent months, trading outside the central bank's target band of N150-N160 naira to the dollar since June, initially due to foreign investors booking profits on their naira assets, and on importers buying dollars.
Okoroafor insisted that the CBN remained committed to the band.
"We have the resources to meet demand. We are still determined to keep within that band," he told Reuters.
But a similar naira weakness, partly caused by excessive spending prior to 2011 national elections, forced the central bank to lower the target band from N145-N155 to the dollar in November that year, after months of struggling to prop it up.
Pressure on the nation’s currency is expected to worsen next year as elections loom again in 2015 – traditionally at a time when government expenditure becomes very loose, pumping excess liquidity into the banking system.
"It's the case all over the world – governments tend to spend a lot leading up to elections," Moghalu said.
The naira has hovered around the N162-N163 level in recent months, at the interbank segment due to strong demand for dollars. It touched a 20-month low of N163.70 to the dollar last week.
"We believe that the probability of (moving the trading band) is slim in the coming months," an economist at Ecobank, Gaimin Nonyane, said, adding that the bank had ample funds.
"Such a move would increase inflationary pressures. Given the central bank's commitment to promoting price stability, we think the current rate will be maintained," he added.
Nigeria's consumer inflation ticked up to 8.7 percent in July, though Moghalu said he expected it to stay in single digits this year.
Sanusi had repeatedly warned that excessive election spending poses an inflation risk that he is ready to counter with tight monetary policy.
Analysts expect Sanusi would stick to that path until his planned departure June next year when his five-year term expires.
"The central bank will continue to defend exchange rate stability as long as governor Sanusi remains in charge," Standard Bank's Samir Gadio argued.
Sanusi has spent billions of dollars of foreign reserves over the past months in keeping the naira, which has lost 4.6 percent since the year, within its target corridor.
But Nigeria’s foreign exchange reserves stood at $46.825 billion on Monday.
"Nothing about the central bank's recent guidance or behaviour suggests that is about to allow a devaluation of the naira," an economist at CSL Stockbrokers, Alan Cameron, said.