Here comes the big trouble, for with floating of naira comes massive devaluation, Hyperinflation and higher interest rate.
Nigerian government has finally bowed to recommendation by masterly International Monetary Fund (IMF) to devalue naira by allowing the embittered currency to float. Nigerian government cannot be accused of dithering; the government held his own but oddities and authoritative IMF finally have their way.
The governor of Central Bank of Nigeria (CBN), Godwin Emefiele has stipulated that naira value will be determined by the forces of the market grounded on the law of demand and supply. Therefore from June 20, naira will be allowed to float, subsequently bringing with it massive devaluation and further weakening of naira. CBN has earlier pegged naira at about 197 to a dollar, but the apparent value of naira determined at the parallel market stood at about 340-350 to a dollar.
When the pegged on naira is finally removed and floating commences, the outing prevailing naira rate at forex may climb up to 400 to dollar higher than the rate at parallel (black) market. The possibility and probability are imminent because there is not enough dollars to sell to ‘hungry’ buyers. The demand for dollars by the “selective dealers” will surge with inadequate supply, simultaneously deteriorating the intrinsic purchasing power of naira at the monetary base.
The weakening and devalued naira will depressed the currency purchasing power due to the emerging hyperinflation. Take note of the word ‘hyperinflation’ this is not your ordinary inflationary trend. Hyperinflation can be describe as super inflation attributed to declining naira value, economic recession and paucity of food products/essential materials in the market. With consecutive negative contractions of two quarters, recession will be apparent. Already the GDP has a negative growth of 0.4 percent in the first quarter of the year.
Minister of Finance Kemi Adeosun, MD IMF Christine Lagarde, CBN Govenor Godwin Emefiele