Experts suggest further devaluation of currency
The local currency’s value fell to N500/$ yesterday, defying the anticipated support of the resurging foreign exchange (forex) reserves’ volume, now at $27.9 billion.
In the last one week, the reserves have gained about $450 million and observed average increment of nearly 2.7 per cent daily in the last 60 days, a period in which parallel market rates have oscillated between N480/$ and N498/$.
The situation has shot up the cost of the production of goods, especially those that are dependent on dollar-denominated imports. This is raising fresh concerns over possible further devaluation of the naira. It also shows that government’s target of tackling the exchange rate crisis, and expected gains from oil prices, which form the basis for positive outlook by international bodies, are faltering.
Meanwhile, the interbank market exchange rate has remained at N305.25/$ despite the demand pressure, but was quoted at N386.65/$ on the official websites of bureau de change operators.
The naira’s depreciation to N500/$ yesterday was seen as long in coming, as several critics of the current monetary policies have also quoted N750/$ and N1000/$ as the local unit’s destination.
A political economist, Prof. Pat Utomi, said the development called for the convening of all the actors, regulators, organised private sector and other stakeholders to find the way forward.
“This is important because it is one thing to dwell on the shortage of dollar supply alone and another thing for those given access to the dollar as an incentive to boost productive activities to actually import the items, instead of round tripping.
“What we have now is a fallout of loss of time. For a long time, there was no fiscal policy. The monetary policy led by the Central Bank of Nigeria was carrying an overload. But one thing is sure: the current foreign exchange crisis represents an opportunity for Nigeria to raise production of substitutes,” he said.
For the research economist at Ecobank Nigeria, Kunle Ezun, the exchange rate at present is not much about the growth of the forex reserves, but how it is applied to the market activities.
“The reserves could be growing geometrically, but how much of it is available in the market? If it is at the same level of supply, it will still be as though there is scarcity. So, the percentage available to satisfy demand will always be the difference,” he said.
The Chief Executive Officer of Cowry Asset Management Limited, Johnson Chukwu, who corroborated Ezun, noted that whatever the interbank market could not supply out of the permissible items and the rest of the 41 items are moved over to the parallel market.
According to him, the rising number of the unmet demands is actually driving the price and as long as the reserves keep rising without being used to settle the backlog demand, the pressure will continue to pile up.
But the currency and research analyst at FXTM, Lukman Otunuga, said the only option left for the country in the immediate was to devalue again, which would close the gap between interbank and parallel markets.
This would also reduce the country’s level of uncertainty associated with foreign exchange as perceived by international investors.“Discussions about Nigeria presently has shifted from the diversification to fiscal and monetary policies. If it is to move out of recession this year, it must overcome its rising unemployment and inflation levels, which are tied to exchange rate.
“The situation now is hard and CBN will have to devalue again, maybe in a few months time. It is the only option for the exchange rate crisis for now. This is going to affect a lot of things in the immediate- fuel and consumer items, but in the long term it would normalise.”
According to Otunuga, “Everything is not just normal for the country. Remember, the positive outlook for the country by the World Bank and International Monetary is only anchored on oil price rebound and fixing of the exchange rate. Up till now, Nigeria is still behind the 2.2 million barrels per day benchmark and the militants are threatening. If the official market is effective, the parallel market will not function.”