As the official rate of the local currency quickly approached the market rate, fearsome inflation began to emerge due to the strengthening of trading windows and the removal of official restrictions on the country’s parallel foreign exchange market.
Deposed Central Bank of Nigeria (CBN) Governor Godwin Emefiele has been a strong supporter of the Naira, which has been criticized over the past decade for making the official exchange rate vulnerable to corruption by political cliques. The official dollar base rate was below N450 while the parallel market rate was above N700. And companies in the business world have complained strongly about exchange rate imbalances as a major distortion of market competition. They also highlighted the bank’s request to divert the currencies received from the CBN to a parallel market for maximum returns.
Emefiele has staunchly defended the Naira against the storms in the foreign exchange market using a variety of monetary policy tools, opposing international financial analysts and multilateral lenders who advocate a devaluation of the Naira. Due to the removal of Emefiele by the new administration of President Bola Tinubu and political changes in the country’s financial system, the CBN recently liberalized the foreign exchange market, allowing market forces to alter exchange rates for which the naira is now the main international law. allowed me to decide. soft.
The new policy inevitably closed the leverage window for government officials and banking groups, but exposed the economy’s severe foreign exchange deficit and widened the gap between the official and parallel exchange rates. And strong demand for the currency pushed the Naira down.
After the holiday week on Tuesday, the market indices rose by about 57% with the official exchange rate close to the parallel market exchange rate of N750 to the dollar. Inevitably, the parallel market rose from N10 to N760 to the dollar to maintain trading margins.
Marketing groups in the domestic fuel market have consistently criticized more exchange rates for players that compete directly with the Nigerian National Petroleum Company (NNPC) Limited. They claimed official Forex quoting privileges. And with market sectors collapsing, it remains to be seen whether their concerns about high exchange rates will be able to address market forces. Industry experts argue that fragmentation is a conduit for corruption without addressing the underlying issue of the economy’s lack of currency. One of them, speaking on a national television station, pointed out the tendency of an exchange rate increase to increase inflation. An Oracle Today report on the devaluation of the Naira by the Tinubu government was accurately predicted by international finance experts, explaining the fragile emerging market economies.
Bloomberg analysts estimate the decline in the value of the naira to 25%. However, indicators so far suggest that the decline in the value of the Naira could exceed 100% in the first six months of Tinubu’s new government.
Ayodeji Dawodu, head of African countries and credit research at London-based Banctrust Investment Bank Ltd, predicted the risk of a devaluation of the Naira if Tinubu becomes president, Bloomberg reported.Join our Conversation forums