New Forex rule: Naira to fall further, say experts
The Central Bank of Nigeria’s decision to stop foreign exchange sales to importers of 40 items on Tuesday is a good move but it will make the naira to fall further against the dollar, especially at the parallel market, economists and analysts have said.
The CBN had banned the importers of rice,
private jets, textiles, poultry products, vegetable oil and 35 other
items from accessing foreign exchange at the nation’s forex markets.
The regulator said the move would help
preserve the external reserves, facilitate the resuscitation of domestic
industries and generate employment opportunities.
But economists and analysts, who reacted
to the announcement on Wednesday, said the naira had already come under
severe pressure and would fall further as the central bank pushed forex
demand from the interbank market to the parallel market.
The CBN had said that those desirous of
importing the listed items could do so using their own funds
without
recourse to the Nigerian forex markets.
They predicted that the naira could fall to 230 against the dollar at the parallel market in coming days or weeks.
An analyst and currency strategist at
Ecobank Nigeria, Mr. Kunle Ezun, said, “The immediate effect of the
circular is on the parallel market (black market), where dollar-naira
currently stands at 220. By this circular, the CBN has surreptitiously
transferred the funding of the excluded items to the parallel market.
This is expected to increase the naira volatility to about 230.
“This will lead to an interbank exchange
rate of around N217 to one dollar (the CBN indicative rate is currently
set at one dollar to N196.90).”
An Associate Professor of Economics at
the Ekiti State University, Abel Awe, commended the CBN for the move but
said it might fuel further pressure on the naira, making it to go for
about 230 against the dollar at the parallel market.
He recommended an outright ban on the importation of the listed items and other similar items by the Ministry of Finance.
The Head, Investment Research, Sterling
Capital, Mr. Sewa Wusu, noted that the naira had been under pressure
because the market was waiting in anticipation of a further devaluation.
“What the economy needs now is to become a
producer economy. If our industries are allowed to produce these items,
our dependence on oil and other imported items will be reduced. Most of
these items can be produced locally. The ban is a good move,” he said.
The Acting President, Association of
Bureau De Change Operators, Alhaji Aminu Gwadabe, said the naira was
likely to fall to 230 against the dollar at the parallel market in the
next one week.
“The restriction will reduce the demand
in the forex market in the short run; in the long run, there is still a
need for exchange rate adjustment (naira devaluation) to bring the
demand and supply in the forex market to equilibrium,” an economist and
Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck
Rewane, said.
Meanwhile, the new policy has started creating artificial scarcity of forex at the black market.
It was learnt on Wednesday that black
market operators were hoarding their stock of dollars, euros and pounds
in anticipation of major appreciation in the value of the foreign
currencies against the naira at the parallel market.
According to a report by Ecobank Nigeria
Economics Research, the 40 items banned from the forex market constitute
63.6 per cent of the $9bn total foreign exchange utilisation on visible
imports in the fourth quarter of 2014.
This means that the banned items will
cause approximately $5.7bn quarterly forex demand to move from the
official forex market to the parallel market.
The Managing Director, DLM Asset
Management Limited, Mr. Tola Odukoya, said to make Nigeria a productive
base, there was a need for the CBN to compliment the forex ban with a
monetary policy by reducing the Monetary Policy Rate in order to boost
lending to the real sector and ultimately grow the economy.
The Chairman, Ikeja Shop Owners
Association, Mr. John Okonkwo, observed that any policy that would cause
the prices of local items to rise was not a good one.
He added that the prices of food items were already getting too high for the ordinary man to afford.
The Director-General, Lagos Chamber of
Commerce and Industry, Mr. Muda Yusuf, said the group was still studying
the policy and would come up with a comprehensive response, adding that
it was doubtful if the parallel market and Bureaux de Change had the
capacity to absorb the demand for foreign exchange from the importers.
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