The unification of trading windows and dismantling of official restraints on the parallel foreign exchange markets in the country is beginning to pull the dreaded inflation triggers as official exchange rate for the local currency quickly races close the street rates.
The ousted Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele, had in the past decade mounted a strong protection for the Naira with official exchange rate which was criticized as falling vulnerable to corrupt abuse by political cronies.
Whereas the official exchange rate for the benchmark dollar was less than N450, the parallel market rate was above N700. And businesses in the economy complained bitterly against imbalances in the forex rates as key distortions to market competition. They also pointed at the lucre pull on banks to divert forex obtained from the CBN to the parallel markets for maximum returns.
Emefiele’s vehement protection of the Naira against forex market storms using various monetary policy instruments pitched him against international financial analysts and multilateral lenders who advocated devaluation of the Naira.
With Emefiele’s removal by the new administration of President Bola Tinubu and associated policy shakeups in the nation’s financial systems, the CBN recently liberalized the foreign exchange market to allow market forces determine the rates at which Naira would now exchange for key international legal tenders.
Bola Tinubu activated reforms in the economy
Whereas the new policy would inevitably close the privilege windows against government officials and cabals in the banking sector, it has exposed the acute scarcity of foreign currencies in the economy and also closed the wide gap between the official and parallel exchange rates. And strong forex demand pull has seen the Naira rolling downhill.
Market indices after the holidays on Tuesday showed the official exchange rate jumping by some 57 percent close to the parallel market rate at N750 for a dollar. The parallel market was inevitably pushed up by N10 to N760 per dollar to maintain a trading margin.
Marketing groups in the domestic fuel market had consistently decried the multiple exchange rates for players which were in direct competition with the Nigerian National Petroleum Company (NNPC) Limited. They demanded the privilege of official rates for forex. And with the collapse of market partitions, it remains to be seen if their concerns about high forex rates would be addressed my market forces.
Industry analysts insist that what has been dismantled is the corruption conduit without addressing the fundamental issue of forex scarcity in the economy. One of them who spoke on a national television pointed at the tendency for the rising forex rates to propel inflation.
Devaluation of the Naira by the Tinubu government, The Oracle Today reports, was accurately predicted by internation financial analysts who counted vulnerable economies in the emerging markets.
Bloomberg analysts had estimated a media dip by the Naira at 25 percent. But indices so far have shown that value depreciation of the Naira might hit over a 100 percent in the first six months of the new Tinubu government.
Head of Africa Sovereign and Credit Research at Banctrust Investment Bank Ltd in London, Ayodeji Dawodu, is quoted by Bloomberg as predicting the risk of Naira devaluation if Tinubu became president.