+ Experts predict hyper inflation
ECONOMIC and financial analysts have predicted that the naira might crash to 250 against the United States Dollar at the parallel market in the next couple of weeks, following the trading of the currency against the USD at a record N232 last week.
Some are even advising the Central Bank of Nigeria to devalue the currency to say 240 or 250 to mitigate against an impending major economic crisis.
The development means the national currency has lost 6.4 per cent of its value against the US currency within the space of 10 days at the parallel market after shedding off over 25 per cent in the last few months.
ENCOMIUM Weekly learnt the slide in naira value at the parallel market started last Wednesday, July 1, after the CBN banned importers of some 41 items, from accessing their forex needs at the foreign exchange market.
In order to beef up the fast depleting external reserves, the CBN on Tuesday, June 23, stopped the sales of foreign exchange to importers of rice, private jets, textiles, tomato paste, poultry products and 35 other times.
The CBN, in a circular dated June 23, 2015, stated that the implementation of the policy would help to conserve foreign reserves and facilitate the resuscitation of domestic industries as well as generate employment.
The circular, which was signed by the Director, Trade and Exchange, CBN, Mr. Olakanmi Gbadamosi, stated that it was imperative to exclude importers of some goods and services from accessing foreign exchange at the Nigerian foreign exchange market in order to encourage local production of the items.
“The implementation of the policy will help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.
“For the avoidance of doubt, please note that the importation of these items are not banned, thus importers desirous of importing these items shall do so using their funds without any recourse to the Nigerian foreign exchange market.”
The list of 40 items include cement, margarine, palm kernel, vegetable oil, poultry products (chicken, eggs and turkey), Indian incense, tinned fish in sauce (Geisha, Sardines), cold rolled steel sheets, galvanized steel, roofing sheets, wheelbarrows, head pans, metal boxes and containers, and enamelware.
Others are steel drum, steel pipes, wire mesh, steel nails, wire rods, security wire, wood particle and board, wood fibre boards and panel, plywood board and panel, wooden doors, toothpicks, glass and glassware, kitchen utensils, tableware, tiles and wooden fabrics, plastic and rubber products, and soap and cosmetics.
The latest policy is expected to make the prices of the listed items to shoot up in the market as importers of the items will now source for foreign currencies on the street market also called black market.
This might in turn lead to hyper inflation since it would affect other goods, economic and financial experts warned.
NAIRA IN ITS WORST RUN
The naira had fallen to 220, 223, 226.5, 228 and 230 against the dollar at the non-official market in the past 10 days following the controversial forex rule.
“We are probably heading for a twin economic crisis of high exchange rate and high inflation rate if we don’t quickly nip it in the bud. Going by the way the naira is falling, it may hit 250 against the dollar at the parallel market if nothing is done to reverse the trend,” a currency strategist and analyst at Ecobank Nigeria, Mr. Kunle Ezun, was quoted as saying. “For me, the best thing may be for the CBN to devalue the naira. The truth is that there is no dollar out there at all.
The Head, Research and investment, Sterling Capital, Mr. Sewa Wusu, also said the “onus lies on the CBN to devalue the naira before it is too late.”
“The market is reacting to the expected devaluation of the naira, which ought to have been done before now. What is actually pushing the naira southward is the banning of 41 items from the forex market.
“The CBN needs to devalue the currency. It needs to act fast. Even the foreign investors are waiting on the sidelines for the CBN to devalue the naira. They have stopped investing in naira-denominated assets for now.”
The Acting President, Association of Bureau De Change Operators of Nigeria, Alhaji Aminu Gwadabe, who had predicted that the naira would hit 230 against the dollar following the new forex rule, forecast the currency to trade at over 250 against the dollar at the parallel market soon.
“Going by the way the naira is falling, it may fall below 250 in the coming weeks,” he said.
The CBN forex policy, which has pushed huge forex demand from the interbank (official) market to the parallel (black) market and the Bureau de Change retail segment, has led to artificial scarcity of the dollar and other major foreign currencies as operators now hoard them in anticipation of higher prices.
Analysts estimate that the policy will push over $5.7bn quarterly forex demand from the interbank market to the parallel market.
Recall that the naira fell further on Wednesday to N230 to the dollar on the parallel market, driven by pressure from importers excluded from the interbank market, currency traders said. And this was despite the estimated interbank market volumes for forex at $1.12 billion on same day. One foreign client allegedly sold $735.74 million to one of Nigeria’s banks at N198.45. But that seemed not enough to shore up the troubled Nigerian currency.
“The market is very volatile now as a result of the restrictions placed on about 41 items by the central bank. Most importers are now patronising the parallel market to source their dollars,” said Harrison Owoh, the head of a foreign exchange bureau.
The naira was trading at 198.95 to the dollar on the interbank market last week. The CBN lowered its exchange rate peg to N196.95 to the dollar on Tuesday from N196.90 last week.
THE ECONOMIST SCOLDS CBN
Tagging the CBN’s new forex regime as ‘Currency Toothpick alert,’ The Economist said its efforts are needless stop-gap desperate measures.
“Central bankers may talk in martial terms of defending currencies against bloodthirsty speculators, but they seldom suffer wounds more grievous than a bruising of their egos. They can, however, cause untold harm to economies, as the Central Bank of Nigeria (CBN) is doing in puffing up its exchange rate.
“The naira has been hit hard by a fall in the price of oil, Nigeria’s main export. The official exchange rate has slumped by almost 20 per cent over the past year to about 196 naira per dollar. The black market rate, a more accurate gauge, is close to N230. Instead of allowing the naira to devalue, the central bank is trying to defend it by blocking imports. It has drawn up a list of disfavoured goods, and will not grant foreign exchange to import them.”
The CBN has, however, chided the journal of recorded, insisting it won’t be stampeded into any action that would hurt the fragile economy in the long run.
HOW THE NAIRA FARED AGAINST MAJOR INTERNATIONAL CURRENCIES
LAGOS BLACK MARKET RATES (July 1-3)
NAIRA DOLLAR POUND EURO
(NGN) (USD) (GBP) (EUR)
Buy / Sell Buy/Sell Buy/Sell
03/07/2015 228 / 231 353 / 357 248 / 253
02/07/2015 227 / 232 350 / 356 250 / 256
01/07/2015 223 / 230 344 / 348 244 / 253
30/06/2015 221 / 224 346 / 349 244 / 253
29/06/2015 222 / 226 345 / 350 240 / 250
26/06/2015 221 / 225 344 / 348 239 / 246
CBN Exchange Rates
USD – 196.95 GBP – 306.79 EUR- 218.06
– UCHE OLEHI