The House of Representatives has called on the Central Bank of Nigeria to urgently put in place a policy to control the further devaluation of the naira against the US dollar and other international fiat currencies. The House deplored that while the Nigerian currency is losing value, others in Africa are gaining.
In plenary on Wednesday, the House unanimously adopted a motion tabled by the vice chairman of the Pensions Committee, Bamidele Salam, who warned CBN of the implications of further devaluing the naira.
The motion was titled “Matter of Urgent Public Importance on the Need for the Central Bank of Nigeria to urgently implement monetary policies to stop the free fall of the Naira against the dollar and other international fiat currencies.”
Salam recalled that the Governor of the Central Bank of Nigeria, Godwin Emefiele, addressing the bankers’ committee at an economic summit in Lagos in early February, informed the committee of the devaluation of the naira against the dollar.
The legislator also quoted Emefiele as saying at the summit that the official exchange rate is 410 per dollar. “This is 7.6% weaker than the rate of 379 posted on the central bank’s website,” Salam noted.
According to the legislator, while the value of the naira against the dollar has decreased by 9% in the last six months, the South African rand and the Ghanaian cedi have appreciated by 11.4% and 1% respectively.
Salam also recalled that the CBN adopted more exchange rates in 2020 in an effort to avoid a total devaluation. He noted that the official rate used as the basis for budget preparation and other official transactions differs from a tightly controlled exchange rate for investors and exporters known as the Nigerian Autonomous Foreign Exchange Rate Determination Methodology (NAFEX).
He pointed out that the naira has been trading in a narrow range between N400 and N410, while the NAFEX rate is different from the parallel market, considered illegal by the CBN, where the naira closed at 502.
Salam said: “The House is concerned that the devaluation will cause inflation because imports will be more expensive – any imported commodity or raw material will increase in price; Aggregate demand rises, causing demand inflation. Businesses / exporters have less incentive to cut costs because they can rely on devaluation to improve competitiveness.
“The concern is that long-term devaluation may lead to lower productivity due to declining incentives.
“The House is also concerned that the devaluation of the naira makes it more difficult for young Nigerians especially in the IT sector, whose businesses are online and must necessarily trade in US dollars.
“It also reduces real wages. In a period of low wage growth, a devaluation that causes import prices to rise will make many consumers feel worse. ”
The legislator added: “The House is concerned that a huge and rapid devaluation could scare off international investors. It makes investors less willing to hold government debt because depreciation actually reduces the effective value of their holdings. In some cases, a rapid devaluation can trigger a capital flight.
“The House is also concerned that if consumers have debt, such as foreign currency mortgages, they will see a sharp rise in the cost of repaying the debt after the devaluation. This happened in Hungary when many had taken out a foreign currency mortgage, and after the devaluation it became expensive to pay off euro-denominated mortgages ”.
Disclaimer: The mail Naira’s devaluation can cause inflation, warns CBN was first published by Leke baiyewuwe punchng.com.