Wednesday, September 19, 2018

Devaluation of naira ‘unlikely in medium term’

Devaluation of naira ‘unlikely in medium term’
April 29
06:35 2014

A devaluation of the naira is “not likely” to take place in the medium term as this policy will not have any positive impact on Nigeria’s earnings power, Standard Bank has said.

Weakening the naira will not yield any benefits in the short run because both output and exports will fail to respond to such a measure due to rigidities in the economy, Samir Gadio, Emerging Markets Strategist at Standard Bank Plc, London , said in an emailed reply to questions Monday.

“Senior CBN officials continue to hold the view that a weaker currency would not improve external competitiveness and/or boost import substitution given that oil accounts for 95% of exports and considering Nigeria’s persistent infrastructure and energy bottlenecks,” Gadio said.

There have been calls recently for CBN to devalue the currency of Africa’s biggest economy to improve export earnings.

No impact

Economic theory says such a move will lead to increased export earnings if the demand for the country’s exports is responsive to such a move.

In the Nigerian situation, oil, the country’s biggest foreign exchange earner, is priced in dollars, which means that a devaluation of the local currency will have no impact on the demand for oil.

Damina Advisors, the Frontier Markets Specialists, said in its forecast for 2014 that the new CBN governor would devalue the naira, by between 10% and 15% “on the back of falling oil prices”.

The naira is currently pegged at 155/$, with a margin of 3%, up and down.

At his confirmation hearing by the Senate in March, incoming CBN governor Godwin Emefiele said devaluation was “not an option”, pointing out that Nigeria, Africa’s biggest oil producer, is an import-dependent nation.

For a country that imports anything from tooth picks to machinery, price increase resulting from devaluation will a wide-reaching effect on the economy.

Emefiele, until his nomination by President Goodluck Jonathan the CEO/Managing Director of Zenith Bank Plc, will assume office in June, replacing Lamido Sanusi Lamido, who was suspended by Jonathan in February.


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