The Best Defence For The Naira Is To Make Nigeria An Export-Based Economy —GTI

Economic analysts have stressed the need to grow nation's capacity for exports to prop up the value of the naira, which has remained under pressure since last year.

Analysts at GTI Securities Limited, in a report entitled 'CBN's tactical devaluation of the naira, what next?' said, "The best defence for the naira is to make Nigeria an export-based economy, so that the severe pressure on the local currency as a result of crude oil price volatility can be averted."

In a move to calm the foreign exchange market, the Central Bank of Nigeria had last week closed the Retail and Wholesale Dutch Auction systems. It said the action had become necessary following the sharp disparity between the official exchange rate and interbank rate of the naira, adding that all demand for forex should be channelled to the interbank market.

"By and large, we view the CBN's decision a bold and positive move and expect to see the naira exchange rate fluctuate to its market determined exchange rate level."

The CBN had, at the close of the Monetary Policy Committee meeting of November 25, 2014, devalued the naira and moved the exchange rate from N155/$ to N168/$1 and equally raised the asymmetric band from +/-3 per cent to +/-5 per cent.

The GTI report stated, "At this point, the plausible trading region of the naira to the US dollar in the interbank market was at a lower limit of N160 and upper limit of N176. Unfortunately, the naira closed at N176.20 that day, 20 kobo above the upper limit.

"It appeared that the CBN had kept faith in the belief that the rapid fall in the oil prices which has remained the sole driver of mounting pressure in the forex would likely halt in no distance time.

According to the analysts, this assertion confirmed the unanimous decision by the MPC to maintain universal status-quo in the January's meeting.

They observed that despite the fact that the naira was already high at N189.14 to a US dollar at the interbank market, the CBN's decision to leave the regime unchanged elicited a lot of comments.

They stated, "In our view, this decision of the CBN to scrap the rDAS/wDAS foreign exchange window is a technical way of re-pricing (devaluing) the naira against the US dollar.

"The CBN's particular interest here is to reduce the unavoidable depletion in the external reserves account as a result of continuing uncompetitive trading position of the naira to the US dollar. Note that the external reserves accounts closed on February 13 at $33.66bn, 5.24 per cent lower than end-December 2014 figure of $34.47bn."

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Reported by Femi Asu, for Punch Newspaper
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