Experts Say CBN policies can’t Salvage naira
The naira-dollar exchange rate gap widened from N80.67 per dollar at the beginning of 2021 to N152.83 per dollar in December 2021, leaving the naira with a depreciation of 20.43 per cent.
A report by Bismarck Rewane’s Financial Derivatives Company (FDC) at the weekend underlined that many policies by the Central Bank of Nigeria (CBN) have failed to bridge the gap between the officially managed foreign exchange (forex) window of the apex bank and the parallel market, which several forex users resorted to.
According to the report, most African currencies have depreciated in value in the last three years, with the Angolan Kwanza and Nigerian naira recording the highest loss. However, in 2021, the Angolan Kwanza reversed its downward trend to be the only African currency under our review to appreciate in value in the last year. The Angolan Kwanza, which suffered a three-year depreciation of 82.8 per cent between 2018 and 2021, appreciated by 13.59 per cent between 2020 and 2021. However, the naira, which suffered a three-year depreciation of 55.92 per cent, also depreciated by 20.43 per cent between 2020 and 2021.
Meanwhile, the naira appreciated by 4.6 per cent to N416 per dollar at the official Investors and Exporters (I&E) window but depreciated by 0.9 per cent to N570 per dollar at the parallel market at the weekend.“Although the CBN has implemented some forex management policies, like the naira4dollar promo and the recent exchange rate adjustments to improve naira stability and forex inflow, they are insufficient to ensure a naira convergence. Hence, there is the need to improve the productive side of the economy and leave the official forex rates to be market determined. This will promote naira convergence in the medium to long term,” Rewane stated.
The report noted that manufacturers have been forced to adopt a blended exchange rate of both official and parallel market rates. This blended rate ranged from as low as N430 per dollar at the start of 2021 before deteriorating to as high as N550 per dollar. This had an impact on the prices of consumer goods. In reality, the impact of an adjustment of the official rate and rate convergence could lead to an adjustment of the blended rate used by manufacturers.
“A reduced spread will decrease the incentive (arbitrage) for speculators to obtain forex at the official market and resell at the parallel market. This may result in panic dumping of dollars at the parallel market due to the concern of lower demand for forex and appreciation of the dollar at the parallel market,” he said in emailed report to investors.
CBN Governor Godwin Emefiele had explained that Nigeria, like other emerging market countries reliant on oil exports, the retreat by foreign portfolio investors significantly affected the supply of foreign exchange into the country. “With the decline in our foreign exchange earnings and successive exchange rate adjustments, the CBN has continued to implement a demand management framework, which is designed to bolster the production of items that can be produced in Nigeria, and aid conservation of our external reserves,” Emefiele said.
He added that the apex bank has continued to favour a gradual liberalisation of the foreign exchange market in order to smoothen exchange rate volatility and mitigate the impact which, rapid changes in the exchange rate could have on key macro-economic variables. More at: https://thenationonlineng.net/expert-cbn-policies-cant-rescue-naira/
