Naira devaluation: Why CBN must not bow to pressure
Following the decision by the Central Bank of Nigeria, CBN, to devalue the value of naira earlier in the year, the country’s currency exchange rate has been fluctuating between 200-245 against the dollar on the parallel market. The CBN decision though unpopular and highly criticised, is a direct response to the prevailing economic realities caused by the continued drop in price of crude oil in the international market.
To help cushion the effect of the policy, the CBN introduced other measures aimed at curbing access to foreign exchange at the interbank market. This includes the restriction of access to foreign exchange for importers of some goods and luxury items. Since these measures were put in place, the country’s economy has been struggling to maintain a balance.
While the effects of the CBN policy appears to be normalizing, certain forces from outside the country are however mounting pressure on the Central Bank to further devalue the naira. Chief among them is the internationally-acclaimed ratings agency, Standard & Poor’s, S&P, which insists that the CBN will have to at some point again devalue the naira possibly by more than 15 per cent.
According to S&P’s Director of Sovereign Ratings, Ravi Bhatia, the recent measures by the CBN including stopping the sale of forex to importers of 41 items at the official forex markets could only delay the inevitable. Bhatia asserted that another devaluation is inevitable and that Nigeria has no option but to devalue. One of the many threats of the rating agency is that Nigeria may lose its place in the benchmark GBI-EM local currency debt index if it refuses to further devalue its currency.
For a long time, Nigeria’s economy has continued to depend on pressures from foreign interest. We believe that the …Read More
Source:: PM Newspaper