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|UPDATE: Naira Dips, Now Pegged At N495/$ by gistongist: 1:09pm On May 28|
Naira crashed yesterday to N495/$ at the parallel market, losing N14 to the dollar within within few days. It closed on Tuesday at N481/$.
The sharp depreciation came a day after the Central Bank of Nigeria (CBN) devalued the naira at the official market to N410.25/$.
The fall in the currency rate has been linked to dollar scarcity and the hoarding of available greenback by forex speculators to maximize profit.
In an e-mailed guide to investors, Financial Derivatives Company Managing Director Limited Bismarck Rewane, said delayering (unification) of the multiple exchange rate system which had bedeviled the Nigerian economy had been a subject of controversy for a long period.
He said: “Now that it appears settled, we should expect a crawling peg method and an increase in forex supply to ensure equilibrium in the market. That notwithstanding, the CBN’s attempt to mop up excess liquidity could serve as a temporary antidote to consumer price inflation which still remains stubbornly high (18.12 per cent).”
Rewane had earlier attributed the naira’s continued decline to heightened forex supply shortage, demand pressure and rationing.
He said naira rates’ convergence would require adoption of a full floating exchange rate system determined by the forces of demand and supply.
Also, the International Monetary Fund (IMF) said exchange rate rigidities have constrained the economy’s ability to absorb external shocks.
According to the IMF, restrictions on access to foreign exchange for certain categories of goods and multiple exchange rates create distortions in both private and public sectors decision making. They discourage long-term investment, encourage smuggling and provide avenues for corruption.
As a way forward, the IMF suggested removal of foreign exchange restrictions and full exchange rate unification, in line with the authorities’ Economic Recovery and Growth Plan (ERGP), will help keep the parallel market premium low in a more sustained manner.
It therefore called for unified exchange rate for the naira to promote growth and attractive foreign capital.
According to the IMF, foreign exchange backlog and shortages are intensifying Balance of Payment (BoP) pressures insisting that exchange rate unification was imperative to reduce BoP risks.
It said that fiscal deficit would stay elevated in the medium term, while additional domestic revenue mobilisation is required to reduce fiscal risks.
Forex Trading Associate, AZA, global forex trading dealer, Oghenefejiro Eduviere, said exchange rate volatility will persist, with inflation concerns mitigated by the rise in crude oil prices this year with Brent Crude now selling at $66.1 per barrel.
He said that rising oil revenue and increased remittance inflows following the ‘Naira for Dollar’ incentive policy have helped boost foreign exchange reserves from $34.845 billion to $35.22 billion so far this month, according to the CBN.
“Amidst the swings, we expect the overall trend will be a weakening on the parallel market towards N490 on inflation concerns.
|Re: UPDATE: Naira Dips, Now Pegged At N495/$ by budaatum: 1:48pm On May 28|
Our subsidy on forex is similar to our subsidy on petrol. Allowing the market to determine price will initially see a spike in both with the Naira likely doubling to about ₦900 to the $, which will increase inflows as remittances increase to benefit from the more ₦ you get for the $. Unfortunately, inflation will initially kill you there, as they say, before ₦ finds its true level, and we Nigerians don't like pain even if we'd be painless afterwards.
I so love electrical tomatoes is all I can say
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