Nigerians react to CBN’s devaluation of Naira
By AMECHI OGBONNA, KELECHI MGBOJI and CHIMA TITUS NWOKOJI
Tuesday, November 22, 2011
Nigerians have been commenting on yesterday’s official devaluation of the naira by the Central Bank of Nigeria (CBN) and its implications for the nation’s economy and the citizens.
Commenting on the development which said was long expected, the Executive Secretary/CEO of the Financial Markets Dealers Association, Mr Wale Abe said that the decision of the Central Bank of Nigeria was a welcome development. According to him, it was the right thing to do because that is simply a way of reacting to the dictates of the market.
For instance, the interbank market he noted has been hovering around N156 to the dollar. The parallel market hovered around N158 to the dollar while the official rate has gravitated between N150 and N153 to the dollar. “So devaluation of the naira to N155/$ is a way of bridging the gap between these rates. It is actually a way of forcing out the speculators whose activities have been contributing to the mounting pressure on the local currency. So we cannot say the CBN has failed in its attempt to defend the naira, because the bank has successfully managed and defended the naira for the past eleven months,” Abe said; adding that there is equally nothing to fear about inflation. Its effect on inflation will be minimal.
Also speaking on the same matter, Mr David Adonri, Managing Director/CEO of Lamberth Trust and Securities Limited, stated that if the devaluation was material (that is to say if it is devalued by wide margin), it will have a negative impact on the equities market because a lot of investors will shift their assets to hard currency. But if it is not material, it will have no impact.
He said: “Generally when you devalue your currency, the intention is to reduce import and facilitate export. But unfortunately, the Nigerian economy does not have the productive edge to facilitate export. So, it means that it will decrease import, which cannot be decreased and so the effect will be inflationary. It will lead to inflation in the economy. But because the devaluation is not material, the inflation that it will result will be minimal.”
According to him those who have invested in fixed income instrument, they will also suffer some instability because if inflation goes up, it will neutralize what they earn as interest.
He argued also that devaluation affects both equities and fixed income market negatively. But if it is interest rate adjustment, it will impact positively on the fixed income but negatively on the equities market. But exchange rate devaluation negatively affects the financial market.
Meanwhile, former president of the Association of National Accountants of Nigeria (ANAN), Dr Samuel Nzekwe said the development was long expected since most of the transactions in the economy have long been determined on the basis of N155/6 and above to the dollar.
He contended that what the CBN governor had done was merely to formalize the on-going rate.
Nzekwe said he does not expect any significant impact on Nigerian economy since we have lived with the rate for the better part of this year, stressing that the only thing that may be affected was the importation of refined petroleum products which was likely to be based on N155 and above.
He however called on the Jonathan administration to take decisive steps to reinvigorate the real sector so that Nigeria could become an exporter of manufactured goods to other countries .
He said it was wrong for a country that is richly endowed with enormous resources to remain a net importer of fuel from other countries. He called on the government to build refineries so that Nigeria will stop importation of petroleum products.