The Central Bank of Nigeria’s (CBN) ban on 41 items is seen widening the exchange rate differential between the interbank and parallel markets, as the naira hit N245 in the parallel market during the week.
CBN defended its action, saying the denial of foreign exchange access was to encourage local production, create jobs and cut down the undue pressure on the country’s almost depleted foreign reserves
Analysts say the measures by the CBN policy will risk diverting dollar demand to the black market, worsening perceptions about economic policy and delaying a decision to devalue the naira in the wake of weak oil prices.
Nigeria needs to let the naira devalue as the restrictions are starting to harm growth in Africa’s largest economy, Bisi Onasanya, the chief executive officer of the country’s biggest lender by assets, First Bank of Nigeria, said in an interview with Bloomberg last month.
But Nigeria’s central bank is no mood to devalue the naira given the risks to inflation from a weaker currency; potentially delaying investment flows into Africa’s biggest economy.
The central bank (CBN) said in a statement early July that it believed the 22 percent depreciation in the naira after it scrapped the official foreign exchange window “is optimal at this time” and the bank would not be pressured into “desperate measures”.
On Wednesday last week, the naira hit another record low of N242 against the dollar on the parallel market operated by dealers in bureaux de change, down 0.42 percent from Tuesday.
The naira has been hitting record lows on the parallel market since the latest central bank measures introduced three weeks ago.
According to Standard and Poor, a ratings agency, Africa largest economy will have to devalue its currency at some stage, possibly by more than 15 percent.
Increase in reserves
According to figures made available on the website of the CBN, reserves which stood at $29 billion as at June 30 had risen by almost $1billion to $29.955 billion as at July 13, 2015.
“These policies have led to a significant stabilization in the exchange rate and an improvement in market sentiments,” Emefiele said in a speech to Nigeria’s Senate in Abuja.
The measures, coupled with efforts by the five-week old administration of President Muhammadu Buhari to cut wasted spending “have seen our foreign exchange reserves begin a gradual recovery,” he said.
No fiscal side
CBN have being defending the naira currency all alone without help from the fiscal side of the equation
Nigeria’s newly elected president, Muhammadu Buhari has yet to appoint a Finance Minister, meaning the needed coordination between fiscal and monetary policy is lacking in turbulent economic times such as these.
The Nigerian economy is grappling with a commodity price downturn, the prospects of higher US interest rates, slower Chinese growth and power shortages crimping growth.
The delay in the appointment of cabinet has affected the economy as stocks continue to dip and investors slow activities to due to the uncertainties in the policy direction.
For instance, investors in the capital market have in the last 6 weeks lost over N400 billion in value terms due to what analysts described as a combination of delay in economic direction and uncertainty in the forex market.
Josephine Okojie
