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You are here:Home>>Strategic Research & Analysis>> The Conditional Naira's appreciation continues to third week
Friday, 17 February 2012 17:32

The Conditional Naira's appreciation continues to third week

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naira currency naira currency cbn

For three weeks in a role Nigeria’s Naira continues to gain ground against US dollar

The appreciation of naira is due to relative mass inflow of dollars into the exchange market.  Due to dollar sales by oil companies and Central Bank of Nigeria the Nair's buoyancy is likely to continue expect fiscal expenditure and monetary interruptions. The conditional naira's appreciation is tactical move that lacks elongated strategic planning. Naira value should rest on a sound economic outlook and economic output not on temporary fix as inflow of dollar suggested.

 

When the Federal government of Nigeria's over blotted budget kicks in and the price of oil comes down, it will affect the rising value of naira. The partial removal of subsidies may be aiding the value of naira as a source to replenish reserve but the possibility of disturbance have not been put to rest as the government continues to negotiate with the restive labour.

 

The scope and sources of inflow of foreign exchange into the market must be expanded and that is possible when the economy have arrays of products to export in order to generate ample foreign exchange. The limited source of dollar from oil export cannot do the trick and the economy with its structural imbalance cannot sustain the appreciating naira. Therefore naira has not arrived home safe nor is it possible to refer to naira as a strong currency.

 

Bloomberg reported that "The currency of Africa’s biggest oil producer appreciated 0.2 percent to 157.9 per dollar as of 10:27 a.m. in Lagos, the commercial capital, rising 0.6 percent this week. A close at this level would be the highest since Nov. 8, according to data compiled by Bloomberg."

 

This latest appreciation may not be an indication that the good days for naira is back again. The gaining by naira is not anchored on strong fundamentals of Nigeria's economy but rather on the momentum engineered by sales of dollar by the oil companies and the country's Federal Reserve Bank, Central Bank of Nigeria (CBN).

 

Apart from the recent gaining made by naira, the strengthening is probably temporal and conditional. It is conditional because the inflow of dollars may not be sustainable but when the inflow of dollar and its source flow decelerated, naira will return to its original standing. Naira is relatively a weak currency when it stand toe-to-toe to dollar especially when the oil companies and Central Bank of Nigeria supply of dollar ebbs and diminuted

 

"Nigeria has sold $600 million at two foreign-currency auctions this week, the largest amount sold in five days by the central bank since October. The bank offers dollars at twice- weekly auctions to maintain exchange rate stability. The oil industry is the next major source of dollar supply to lenders after the central bank," according to report coming from Bloomberg.

 

Speaking on enhancing the value of naira, Emeka Chiakwelu, Principal Policy Strategist at Afripol emphasized that  sustaining naira's appreciation must follow an unambiguous standard of operation and pathway methodology that will make a real difference on the value of naira. Chiakwelu restated that, "The country's reserve stood at US$ 32.64 billion in December  and the inability to replenish the dwindling reserve in spite of high price of oil was due to the constant defense of the weaken naira."

 

 

And he further stated : “To enhance the value of naira the country's war chest must be strengthened in order to withstand the threat coming from speculators. The CBN has eventually restored to the devaluation of naira up to N160 to $1. But the bulwark is not the panacea because it is focusing on the symptoms of the problem not on the root cause. The country does not produce arrays of agricultural and finished products to export in order to raise a quantifiable foreign exchange that can make naira stronger and that can discourage currency speculators."

 

The problem with Sanusi's Central Bank of Nigeria (CBN) is not coming in tune with the big picture but rather embracing piecemeal methods to fix naira. There must be a long term and comprehensive planning that will bring together the executive, legislature and CBN together. The appreciating naira in three weeks sounds good but to bring about a strong naira that is sustainable needs more work. The fiscal and monetary policies should be in tune with one another and more importantly a strong currency is a reflection of a country's economic wellbeing.


 

Africa Political and Economic Strategic Center (Afripol) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa. http://afripol.org.   This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 


 

 

Last modified on Saturday, 18 February 2012 03:41

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