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Home Business News

Naira Revaluation: Analysts Explain Why You Should Not Get Carried Away

Chacha Wabara by Chacha Wabara
March 28, 2017
in Business News, Currencies
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Nairametrics| Yesterday morning, Nigerians were awakened to another surprising directive from the Central Bank of Nigeria (CBN) that commercial banks should sell a dollar at no more than N360 to its customers. It also indicated that the CBN would now sell at N357/$1. With this move, the CBN has basically revalued the Naira, whose value in the parallel market, has strengthened by over N130 within 34 days as explained by Nairametrics’ timeline.

Trailing the CBN’s directive, however, have been comments from industry analysts, who offer a wide range of mixed reactions.

A winning battle…?

An Ecobank analyst, Kunle Ekun, told ThisDay that the CBN’s action was an indication of the success of the CBN’s new forex policy and its readiness to continue backing the strengthening of the Naira. “It also shows that they are winning the battle. I now think that when the CBN talked about creating an exchange rate convergence, it was actually referring to the rate for invisibles” he said.

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Another financial analyst, Mr. Johnson Chukwu, noted that the current market conditions were favorable for the CBN’s actions. “People do not have cash to buy dollars to hold anymore and that has supported the naira. The key thing is that as the CBN continues to pump dollar liquidity, it would force more people holding dollar positions to sell and that would definitely help the market.”

The CBN will readily point to the sharp rise in the Naira’s value as evidence of the success of its new forex policy, as its Governor, Godwin Emefiele, had on several occasions claimed that the Naira was not trading at a fair value due to the activities of some individuals, whom he labelled ‘currency criminals’. These people, he claimed, were behind the perennial scarcity of forex as they were hoarding dollars in an attempt to spike parallel market rates.

…or just getting carried away?

Others are however of the opinion that the CBN is getting giddy with the success it is having so far with the new policy that it has started ‘getting carried away’ from the realities on ground. Pending monetary obligations of the CBN is an example of obligation which the CBN is yet to attend to.

“We must remember that the FX forward contracts would start maturing as from tomorrow. Forward contracts are posted-dated cheques and when they start maturing is when we would start seeing the effects of the intervention on the reserves…So, first of all, it is a good move, but it is better to be cautiously optimistic rather than getting carried away,” Mr. Bismarck Rewane, CEO of Financial Derivatives Limited, opined.

While advocating a more cautionary outlook, Rewane explained further that “I think if for anything, we should be using this opportunity to find a fair value for the Naira because oil prices have come down and forward contracts are maturing… Rather than move the rate up, what I expected the CBN to do was to open up the market, remove all the restrictions and you will see that the currency will find its real value”

Amidst these varied reactions, it remains to be seen how the CBN will handle the forex/currency control issues later on, especially as its obligations mature and naira liquidity becomes looser.

 

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Tags: CBN Nigeriaparallel market

Comments 2

  1. mazijudez says:
    March 28, 2017 at 12:24 pm

    What exactly is this article saying? It presents no stand to agree or disagree with; confers no new knowledge; doesn’t even bring enough comments from diverse people to help indifferent readers form an opinion. If anything, I think this article invites a teacher to step in and shed some light, but the invitation won’t be all that appealing to a teacher that actually knows his onions. So he’ll just pass.

    Well done, though.

    Reply
  2. Tunde says:
    March 28, 2017 at 5:01 pm

    Well, kindly edit the content on your new lead content editor. ‘She has over 5years experience IS blogging’. Should be IN blogging not IS blogging. Get it?

    Reply

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