The financial market has continued to put pressure on the monetary authorities, the Central Bank of Nigeria (CBN) to adjust the value of the naira downwards to reflect today’s economic realities. This is because current market dynamics suggests that the apex bank will be forced to devalue the over -valued local currency sooner or later.
Speaking at the Sterling Bank training exercise in Lagos over the weekend, Managing Director / Chief Executive of Financial Derivatives Company limited, Mr. Bismarck Rewane, said the Nigeria must devalue or the market will wait for it.
He explained that other economic fundamentals of the country cannot be efficient if exchange rate does not come to equilibrium.
”These things are called adjustments; you are adjusting the currency to meet the reality. The adjustment is what you need that puts you into equilibrium. Whether you like it or not efficiency decisions will emerge”, said Rewane.
Rewane, who stressed the importance of government facing reality in order to ensure stability in the economy, also advised FG to remove fuel subsidy like Angola, Venezuela among other oil rich countries which have removed petrol subsidies.
According to him, the cost of fuel subsidy every day in the country stood at about 25% of the nation’s budget.
Similarly, Mrt. Jurgen Hecker, who was also a guest lecturer at the event, said the economy was more exchange rate sensitive than interest rate.
He explained that the market will continue to attack the naira again and again until when they can’t help it anymore and they will yield.
It would be recalled that even before now analysts have expressed reservations over the current stability in the country’s foreign exchange market, saying it is not sustainable because the basic fundamentals have not been addressed.
Mr. Ambrose Orushe, chief economist, Manufacturers Association of Nigeria (MAN) told Hallmark that the present appreciation that the naira is recording is artificial as the currency has not found its true value.
The Naira yesterday appreciated by N4 against the dollar, exchanging N213/$1 at the parallel market instead of the N211/$1 it traded the previous day.
The naira also gained N0.25, appreciating by 0.13 per cent as it traded N199.25 against the dollar at the interbank forex market yesterday.
Mr. Orushe argued that the naira cannot be said to be stable once the apex bank is still not allowing the value of the currency to be determined by market forces.
“It is just a matter of time; I don’t think this is sustainable, except the proper thing is done.
“The CBN needs to free the currency by allowing market forces to determine its actual value.
When it continues to restrict the demand side, it becomes an imperfect market. The actual value of the naira is not the CBN value,” he asserted.
The MAN chief economist added that the country’s export that was supposed to take care of the supply of forex is still very volatile.
However, Nigeria’s central bank governor had dismissed calls to further devalue the naira amid growing domestic and international concern about the tough outlook facing Africa’s largest economy after the collapse of the oil price last year.