Two leading finance market experts in Nigeria have taken divergent positions on the recent devaluation of naira which the Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele had insisted to be an adjustment and not devaluation.
Recall that the CBN had during a meeting with Bankers Committee in Lagos recently announced the raising of foreign exchange for dollar from N305 to N380.
In his preliminary argument, Economist and Chief Executive Officer of Cowry Asset Management Limited, Mr Johnson Chukwu said it would be sub-optimal to continue to heavily deplete the country’s reserves in defending the naira and as neither the CBN nor the Federal Government is in control of the major factors causing the depreciation of the nation’s currency
According to him, sustained pressure on the reserve, in addition to the continuous exit of foreign investors and crude oil price below $30 billion per barrel have made it become inevitable for the CBN to devalue the Naira.
Chukwu further argued that “With current reserve at less than $36 billion, it will make it imperative for the CBN to consider devaluing the currency.”
Reacting to the CBN’s acclaimed adjustment, the Chief Research Officer at Investdata Consulting Limited, Ambrose Omordion said devaluation is not the best strategy considering the prevailing economic reality, noting that it will further support the rising inflation and increase cost of importation.
In an interview, he said “I am not against technical or real Naira devaluation because CBN policies and actions have helped the economy before now, despite the current challenging situations facing both global and domestic economies.
“Devaluation at this point is not the best of strategy or measure considering the prevailing economic reality, devaluation will further support the rising inflation and increase cost of importation, making it difficult to cut interest rate.
“It is expected to attract foreign inflow if we are an exporting economy, but our major export which is crude oil is in dollar, this move will not attract more buyers at a time the world economy is already depressed by COVID-19. He continued: “CBN had earlier issue FX futures to attract foreign inflow for long term investment and a form of exchange rate stability guarantee. CRR was also, increase by the apex bank recently to curtail inflation.
‘We do not need currency devaluation to discourage import now that coronavirus pandemic has led to the closure of many factories because people are already afraid to import now.
Omordion further argued that devaluation has reduced the purchasing power of the people and trigger massive exit of foreign investors.
He also noted that “The devaluation of naira would have made it possible for the monetary policy committee to adjust the monetary policy rate but with inflation hitting the highest of 12.20% in recent times, the possibility of rate cut is slim, as foreign investors have already turned their back to the OMO investment window.”
