Chukwu traces loss of confidence on naira to FG’s crowded forex initiatives
The chief executive officer of Cowry Asset Management, Mr. Johnson Chukwu has unveiled the reasons behind the steady loss of confidence on naira, saying the trend may continue next year if drastic efforts are not made before the end of the year.
In an interview, he said “It is very important to point out that attempts to manage the economy had been left largely to the monetary authorities and their limits are dependent on tools that are not very effective”.
Continuing, he argued that “We already have structural challenges and the monetary authorities; in other to manage the inflationary pressure has come up with several monetary foreign exchange initiatives which ended up creating more panic to the economy and aided loss of confidence on the local currency”.
“This is the real driver of the current exchange rate rising to about N460.00. The reality is that if you look at purchasing power parity, the dollar should not be selling up to N460, but because there is high loss of confidence.
Chukwu said the economy has seen largely quiet fiscal intervention in the system which has not really given us the kind of click we are looking for.
“For me, I think if the 200,000 jobs issue is well executed and it starts to work, that is when I will say a fiscal intervention has come on stream.
Only yesterday, the naira further weakened to 470 from 465 on Wednesday, as fresh dollar scarcity hit the official and parallel foreign exchange markets.
The local currency had appreciated to around 450 after security agents carried out series of raids on Bureau De Change operators, who sold the greenback above the N400 stipulated by the Central Bank of Nigeria.
Security agents have been raiding the offices of the BDC operators, ordering them to sell dollar at a lower rate in a bid to break the fall of the local currency.
However, the naira started recording losses gradually again as scarcity of the greenback weighed on the forex markets.
“The clampdown on the black market operators by security agents has negatively impacted dollar supply to the market,” one Bureau de changer operator told Reuters.
Economic and currency experts have said getting security agents after the BDC operators cannot get the ailing naira to stabilise.
At the official market, the naira closed at 305 against the dollar, the level it has closed since August.
The naira is expected to depreciate slightly further in coming weeks at both the official and parallel markets on the back of gradual increase demand for forex by small businesses stocking for the Christmas and New Year sales.
While recalling that the inflationary rate trend only crossed the single digit in February, staying at 9.6% in January, Chukwu argued that monetary policy makers took the inflationary rising trend for granted to some extent before it because almost unmanageable.
Business Hilights research showed that inflation reached up to 15.6% in May that is about 1.09 points in excess of the previous month where it stood at 15.7%.
In June consumer prices surged by 16.5% year on year, following 15.6% drop in May.
Also figures came above market expectations at 16.3% increase mostly by sharp rise in cost of food, housing and utilities.
Moving to July consumer prices jumped to 17.1% year on year compared to market expectation of 17.2% rise.
Looking at August, consumer prices rose by 17.6% following 17.1% gain in July.
In September, inflation went up by 17.9% following 17.6% rise in August in line with market expectations. October shows the galloping trend hitting 18.3%.
