Nigeria’s Currency To Suffer More Depreciation As CBN Pegs Naira At N379/$

The Central Bank of Nigeria on Saturday adjusted the country’s exchange rate to N379 to a dollar.

The adjustment which was made on Saturday was disclosed on the apex bank’s website

Before the adjustment, the the spot exchange rate displayed on its website was N361.

The move, according to findings, signals another step towards the unification of the exchange rates used in the country.

The N379 to a dollar exchange rate is N2 lower than the N381 to a dollar being traded on the Secondary Market Intervention sales window.

The SMIS is the market where importers bid for forex using letters of credit and Form M.

The apex bank had in March this year adjusted the official exchange rate from N307 to a new rate of N360 to a dollar from.

When that adjustment was made in March, the apex bank had abolished the N325 and N330 concessionary rates in the foreign exchange market.

The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, had last month said the Federal Government would seek to unify the exchange rates so as to generate more revenue from foreign exchange earnings and manage the economy in a sustainable manner

Ahmed had said the government would direct oil firms to sell dollars to the Central Bank of Nigeria as opposed to the state-owned corporation NNPC.

She had noted that the government would deregulate petroleum prices as part of measures to safeguard oil revenues.

The policy is expected to be implemented over a 12 month period.

Nigeria had operated a multiple exchange rate regime which the Central Bank is using to manage the pressure on the Naira.

But dollar shortages have plagued the economy after a coronavirus-induced oil price crash slashed government revenues and weakened its currency. 

The President, Association of Capital Market Academics of Nigeria, Prof Uche Uwaleke had told THE WHISTLER that the plan by the Federal Government to unify the country’s exchange rate would have adverse effects on the economy

He said that abolishing the official exchange rate and leaving the fate of the naira entirely to market forces has grave implications for an economy having only crude oil, as the principal source of foreign exchange.

With oil revenue accounting for over 90 per cent of foreign exchange, Uwaleke told this Newspaper that unification of exchange rates implied that the dollar-denominated components of government spending will now be done at a higher exchange rate.

This, he noted, would put pressure on external reserves depleting it in the process, thereby worsening the burden of the country’s external debt service obligations.

When this happens, Uwaleke who is a former Commissioner of Finance in Imo State said the development would make the 2020 budget unrealistic and unachievable having been based on exchange rate of N360 per dollar and by extension the recently-approved Medium Term Expenditure Framework.

Besides, the University Don said essential items that have enjoyed access to foreign exchange at the official subsidized rate such as petroleum products imports will have no choice but use the single market for forex.

He said, “The immediate implication is increased cost of importing petroleum products which will lead to an hike in the pump price of fuel especially now the the downstream sector is being deregulated.

“It goes without saying that, in view of the import-dependent nature of the Nigerian economy, any upward adjustment of exchange rate will feed into higher inflation rates at least in the short run necessitating tight monetary policy by the CBN and high interest rate environment.

“It is important to ensure that while leveraging the apsides of exchange rates’ unification, policy makers in Nigeria should ensure that the downside risks are mitigated.

“This, they can do by developing multiple sources of foreign exchange outside oil, especially via agriculture and solid minerals, while vigorously promoting the use of domestic products and services by supporting their availability at competitive prices.”