…Highlight impact of devaluation
Financial experts have lent their support to the gradual adjustment of the exchange rate to close the gap between the NAFEX market and the parallel market.
The experts, who spoke with BizWatch Nigeria on Sunday, in separate interviews said that the unification of the exchange rate will boost investors’ confidence and the growth of key sectors of the economy.
They also highlighted the impact the devaluation of naira would have on the economy in light of the rising consumer prices measured by inflation rate which is at 16.47 percent as of January this year.
They made these comments in reaction to a Bloomberg report that the Central Bank Nigeria at bankers meeting on Saturday said the official exchange rate now stands at 410 to the dollar.
The CBN Governor, Godwin Emefiele was quoted as saying, “In order to adjust for the decrease in supply of foreign exchange, the naira depreciated at the official window from N305/$ to N360/$ and now hovers around N410/$.”
The Head, Retail of Investment at Chapel Hill Denham, Mr Ayodeji Ebo, said that though the apex bank had not outrightly announced the devaluation of naira, the rate at the Investors and Exporters window which closed at 410 to the greenbacks on Friday showed a depreciation.
He noted that the official rate on the CBN website was still 397 to one dollar.
According to Ebo, this may have been a gradual adjustment of the exchange rate in order to unify the rates or close the gap between the two markets.
“The CBN has not announced any adjustment. We know at the I &E window, it closed at 410 but that is a depreciation at that market. The official rate is still 397. I think the adjustment was made based on demand and supply factors. The CBN is trying to close the gap. That is a positive development,” he said.
He stated that the next step would be for the regulator to improve the market so that the gap can further close between the official window and the parallel market.
Doing this, according to Ebo, will ensure that the exchange rate at the parallel market starts to appreciate to further close the gap.
The Director General, Lagos Chamber of Commerce, Dr Muda Yusuf, while commenting on Nigeria’s economic growth recently said, businesses, especially those in the production sector, still encounter challenges in accessing foreign exchange due to the liquidity concerns in the currency market.
He called for a review of the foreign exchange management framework to expand the scope of market mechanism in the determination of the exchange rate.
“The unification of the exchange rates should be prioritised. This is imperative for expediting recovery and bolstering investor confidence,” Yusuf added.
According to him, clarity in government’s policy direction is critical in deepening investor confidence.
Meanwhile, an economist with the Lagos Business School, Dr Bongo Adi, has highlighted the impact of a devaluation of the currency on the economy.
According to him, inflation will continue to rise, purchasing power will plunge and worsen the living condition of Nigerian.
He added that the value of the N13.59 trillion budget for 2021, which was benchmarked against 379/$ exchange rate, would depreciate.
“Inflation will hit the top and most of our import, which is denominated in dollars, will get a price hike and will worsen the living conditions of Nigeria. The terms of trade has shifted massively against us and we have not increased our export so there is going to be a short supply of dollar which will worsen the already bad situation for people in the country,” the economist added.
“The real value of the budget will drop significantly. In dollar terms, the budget will become smaller than the budget we have some years ago even when the economy had been expanding.”
According to him, the devaluation of the currency is an indication that the government has failed.
“For Nigerians, whenever the currency depreciates against the greenbacks, that is actually a bad outlook for the government in power. It is a signal that the government has failed,” he added.
Nigeria’s currency was devalued twice last year, in March when the price of crude oil plunged in the international market and in July in response to pressures from lenders and dollar shortage.
The regulator has adopted multiple exchange rates since last year in a bid to avoid an outright devaluation.
The official rate used as a basis for budget preparation and other official transactions differs from a closely controlled exchange rate for investors and exporters known as Nafex, where the naira has traded in between 400 naira to 410 naira in the last two weeks.
The Nafex rate is also different from the parallel or black market, considered illegal by the central bank, where the naira hovers between 478 to 482 to one dollar.
The International Monetary Fund has suggested that the Central Bank of Nigeria should establish a more transparent, gradual, multi-step and market-based exchange rate policy to boost confidence in the market.
The IMF advised Nigeria to devalue the currency, saying that it is currently overvalued by 18.5 per cent on the official market.