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Thursday, May 26, 2016

ON THE IMMINENT DEVALUATION OF NAIRA


   In my last post i asked your view on the devaluation of Naira. This week CBN, after it monetary policy meeting, have finally decided to devalue the Naira.The decision has brought to an end the official pegging of Naira at N197 per Dollar which was unsustainable. The cost of that policy can be seen in the continuous erosion of our foreign reserve which was used to support the Naira (you can also call it Naira subsidy), and foreign exchange supply crisis. Like it happen with the removal of petrol subsidy, operators of black market in the currency business will disappear, paving way for possible middle ground between the blak market price and the previous pegged value of N197/Dollar. The full effects of this policy will take sometimes to become effective. In the near future, all foreign investors that withdrew their money away from Nigeria will come back. The continuous erosion in the market capitalization of the Nigerian stock exchange is expected to stop and the market rebound back to it previous position of one of the emerging market most profitable destinations.



With this action, the CBN has nullified the official exchange rate regime of N197/dollar.

Read more at: http://www.vanguardngr.com/2016/05/forex-cbn-throws-naira-into-open-market/
With this action, the CBN has nullified the official exchange rate regime of N197/dollar.

Read more at: http://www.vanguardngr.com/2016/05/forex-cbn-throws-naira-into-open-market/
   To me this is a wise decision that should have been taken by Buhari's government since it inauguration on May 29, 2015. It will have saved the government from the embarrassing moments of removing subsidy on petrol and shortly after devaluing the Naira; because had it been the government allowed the market to determine the value of Naira the persistence petrol shortage we experienced in the last eight months would have been avoided. As oil marketers would have the opportunity to freely buy the Dollar they need to import refine petroleum products. The mess created by petrol shortages and the later sudden removal of subsidy would have been avoided. Not only that the imminent recessionary moment we are about to enter would have been avoided. The scarcity and shortages, skyrocketed prices of basic things need by the poor, as well as the intervention of the corrupt Nigerian elites in the market by helping to increase the scarcity of things would have been avoided. Policy of rationing of economic goods be it currency, petrol, food, fertilizer, etc., is opportunity for the corrupt businessmen and government officials to continue with their agenda business as usual. Buhari's government have achieved a lot in the last one year in the areas of security and war against corruption. But, one area Mr. President need to focus more is the economy. Mr. President needs a very strong economic team which he lacks at the moment.

1 comment:

  1. The theory of the devaluation sounds correct but really: Does the Market Correct Itself? We have see time and again that the Market is a ruthless option because the main operators sun their business without qualms or consideration. Lets look the petrol subsidy as an example.
    All along the marketers do collct whatever subsidy is on the offer but that has never stopped them from deliberately manipulating the market for profit. This year ot got tp the [point we buy petrol at over N 200/litre despite the presence of the DPR, the PPPRA and all other NNPC organs that were mandated to check that.
    As at the time the PPPRA worked their imaginary N 145/litre, many were selling at N 125/lire. Surely with this new ceiling there is a probability that furl pries will escalate well beyond whatever dreams we have. Already many IPMAN stations sell for 150/litre while the so-called major marketers have simply closed shop. That is the fallacy of the devaluation since Nigeria produces literally nothing not even the basic foods -grains essentially- we consume.

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