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Home Economy Finance

Can Tinubu Save Naira from Free Fall? 

by Techeconomy
August 10, 2023
in Finance
0
Naira and TInubu
President Bola TInubu (insert: naira)

Naira and TInubu

UBA
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Writer: ONYEKACHI PAUL (Intern)

It is no longer news that the naira has been floated, following the recent announcement by the Central Bank of Nigeria (CBN).

However, the trending issue is how to save the Naira from the current state of free-fall against the United States dollar, particularly in the parallel market.

It all started with the statement by President Bola Ahmed Tinubu at his inauguration. In his inaugural address, he said:

“The Central Bank must work towards a unified exchange rate. This will direct funds away from arbitrage into meaningful investment in plant, equipment, and jobs that power the real economy.”

Riding on that ‘presidential ambition’, the CBN announced the unification of the exchange rate (windows) on June 14, 2023. Ordinarily, the naira-dollar exchange rate ought to be determined solely by market forces hence existing ‘markets’ were collapsed into a single window.

The unification of the rates was supposed to bridge the gap between the official and the parallel rates. However, a significant disparity still exists between the official rate, alternatively known as the Investors and Exporters (I&E) window, and the parallel or black-market rate.

On Aug 9, the NAFEX rate was 782.23 to a dollar. On the black market, the greenback was trading for as high as 910/$.

This is a new record low for the naira since the unification. On the Binance crypto exchange platform, the P2P rate was between 920-924/$. The British pound was trading as high as 1167.70, while the Euro was hovering around 1000.

The disparity between the official and parallel market rates widens as demand surges from importers and travelers. Analysts also point to the fact that the CBN has been unable to meet payments for forward contracts.

Hence, pent-up demand has led most people to source their dollars from the parallel market. Additionally, the increased demand pressure from Nigerians seeking to pay for school fees as resumption nears for schools in the UK, US, and Canada has seen the naira reach an all-time low.

Following the announcement of the unification of the exchange rate by the CBN, analysts from Bank of America had forecasted a year-end value of 700/$.

Bismarck Rewane, chief executive officer of Financial Derivatives Company Limited, also predicted the strengthening of the naira to 680/$. Wale Edun, a finance expert and a close ally of the president, in his ministerial confirmation on Aug 1, predicted the value of the naira to be closer to 700/$, as against the 820/$ it was trading for in the parallel market.

Since President Tinubu assumption of office on May 29, 2023, the naira has lost over 60% of its value.

The exchange rate reforms were applauded by all and sundry as it was considered long overdue, but the reality is hitting hard on Nigerians.

The inflation rate as at July is currently 22.8%, the highest in eighteen years. This means the purchasing power of the average Nigerian is constantly being eroded as cost-pull inflation decimates the value of the naira.

How low will the naira plummet against the dollar? Only time will tell as the naira struggles to find its true value in the face of surging dollar demand.

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    Techeconomy

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