Naira is falling but why? … By Emeka Chiakwelu

Naira the currency of Nigeria that has been known for a while for its
stability has experienced a level of weakest that injected a little panic
at Forex market and Central Bank of Nigeria.  The quick depreciation of
naira must be a headache to the Nigerian financial policy makers at
Central Bank of Nigeria (CBN) that wasted no time in reassuring the market
that Nigeria has an adequate war chest to defend naira from aggressive
speculators.

At the last session of Forex market naira was traded at around 164.50 and
lately at 161.85 against US dollar. For the record naira has maintained
stability at a level hovering around 155-160 against US dollar. Therefore
the concern is real and currency warriors at Central Bank of Nigeria are
already to fight back and defend naira.

Charlie Robertson, a London based expert and analyst  at Renaissance
Capital wrote that  “Much of the existing investor base – both Nigerian
and foreign, and the main companies we saw at our Africa conference in
Lagos this week–are concerned about currency weakness–with many expecting
a 5-10% depreciation this year, to roughly 167-175/$.”

Yes, Charlie Robertson is probably right, but the anticipating 5-10
percent depreciation may be too much. Somewhere at about 2-3 percent
depreciation is reasonable but that is not going to occur and happen
because Central Bank of Nigeria will not give into it nor is Nigeria
willing to allow naira to slip into such a weakened currency.

One thing going for Central Bank of Nigeria is the moderately accumulated
foreign reserve which stood at $42 billion. The deputy governor of central
Bank of Nigeria Sarah Alade was emboldened in reminding the speculators
and currency traders that Nigeria has the means and courage to intervene
on behalf of naira.

Such a statement coming from deputy governor of central Bank of Nigeria
Sarah Alade may psychologically impact the market positively and scare
away speculators that will realize that Nigeria is ready to intervene if
the need be so.
Naira may be attracting currency speculators for many reasons including
for good and bad reasons. On a lighter side Nigeria’s naira has the world
looking at it more positively because Nigeria has been recognized as a
strong emerging market.  In addition, the country’s financial house and
fundamentals are relatively stable including its macroeconomics. The
downside maybe that currency speculators probably feel some signs of
weakness and they move in. But Nigeria with $42 billion in foreign reserve
can adequately fend them off and defend naira.

The last thing Nigeria would do at the moment is to devalue naira because
Central Bank of Nigeria may hold the view that it is too expensive to
defend naira.  But devaluation of naira will send a wrong message to our
trading partners and may even trigger a currency war. Judging from the
reaction and reassuring statement coming from Central Bank of Nigeria that
is far fetch.

Emeka  Chiakwelu, Principal Policy Strategist at AFRIPOL. His works
have appeared in Wall Street Journal, Huffington Post, Forbes and many
other important journals around the world. His writings have also been
cited in many economic books, publications and many institutions of higher
learning including tagteam Harvard Education. Africa Political & 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. info@afripol.org,
http://www.afripol.org,

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