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Nigeria HoR directs CBN to halt naira rapid depreciation

Nigeria’s House of Representatives has directed the Central Bank of Nigeria (CBN) to urgently put in place a policy to check further devaluation of the naira to the dollar and other international legal tenders.

The resolution of the House was sequel to the adoption of a motion of urgent national importance moved at plenary Wednesday by  Bamidele Salam.

The naira has depreciated to N502 to the dollar on the parallel market since the CBN announced that it had adopted the NAFEX rate as its official exchange rate two weeks ago.

The naira closed at N410.95 to the dollar on the Investors and Exporters (I&E) on Wednesday compared with N411.50 the naira closed against the dollar the previous day.

Moving the motion, Salam said while the value of the naira to the US dollar has declined by 9 percent in the last six months, the South African rand and Ghanaian cedi have appreciated by 11.4 percent and 1 percent respectively.

Salam said, for instance, further details as presented in January 2021, the naira exchanged to dollar at about N377, adding that by June 7, 2021, it exchanged for about N411.

He noted that the South African rand, on the other hand, exchanged for about R15.14 to the dollar in January and at about R13.41 as of June 7, 2021, while the Ghanaian cedi, which exchanged for $1 at about ¢5.818 in January, has remained relatively stable in the last six months and even appreciated by about 1 percent.

Salam noted that it clearly showed that all is not well with the naira and whatever policy is being adopted to manage it at the moment.

He stressed that the CBN has adopted multiple exchange rates since last year in a bid to avoid an outright devaluation.

Salam explained that the official rate used as a basis for budget preparation and other official transactions differs from a closely controlled exchange rate for investors and exporters known as the Nigerian Autonomous Foreign Exchange Rate Fixing Methodology (Nafex).

He pointed out that the naira has traded in a tight range between N400 and N410, adding that the Nafex rate is different from the parallel market, considered illegal by the CBN, where the naira closed at N502.

“Some experts believed that Nigeria devalued the naira to record low against the dollar on the official market; according to some traders, their strategy is to unify multiple exchange rates to boost the dollar supply through direct interventions.”

He said having traded within a band of N380 and N381 to the dollar since July last year, the naira hit a record low of 419.75 against the dollar and closed at 411.25 – the previous closing rate for the naira on the over-the-counter spot market.

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“Concern that devaluation is likely to cause inflation because imports will be more expensive (any imported good or raw material will increase in price) Aggregate Demand (AD) increases – causing demand-pull inflation. Firms/exporters have less incentive to cut costs because they can rely on the devaluation to improve competitiveness.”

The lawmaker lamented that the concern is that the long-term devaluation may lead to lower productivity because of the decline in incentives, adding that devaluation also makes it more difficult for Nigerian youths especially in the IT sector whose businesses are online and must necessarily transact businesses in US dollars and also reduces real wages.

Salam said in a period of low wage growth, a devaluation that causes rising import prices would make many consumers feel worse off.

Salam further argued that in some cases, rapid devaluation can trigger capital flight.

He expressed concern that if consumers have debts, for instance, mortgages in foreign currency, they would see a sharp rise in the cost of their debt repayments after a devaluation.

The House resolved: “Direct the CBN to urgently put in place a policy to check further devaluation of the naira to USD and other international legal tenders.”

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