The House of Representatives on Wednesday tasked the Central Bank of Nigeria (CBN) to urgently put in place a policy to check further devaluation of the Naira to USD and other international legal tenders.
The resolution was passed sequel to the adoption of a motion on ‘Matter of urgent public importance sponsored by Hon. Bamidele Salam (PDP-Osun) who expressed grave concern over the state of the country’s economy.
While frowning at the fragility of the country’s currency, Hon. Salam queried the rationale behind the appreciable value of the South African Rand, on the other hand, exchanged for about 15.14 Rand to the US$ in January and at about 13.41 Rand as of June 7th, 2021, while Nigerian currency continues to depreciate continuously.
According to him, the South African Rand and Ghanaian Cedi, have appreciated by 11.4% and 1%, in the last six months while Nigerian currency declined by 9% within the period under review.
“The House notes that in February this year, the Governor of the Central Bank of Nigeria while addressing the Bankers Committee at a summit on the economy in Lagos, informed the committee about the Naira devaluation against the USD. He added that the official exchange rate stands at 410 to the dollar. That’s 7.6% weaker than the rate of 379 published on the central bank’s website.
“The House further notes that while the value of the Nigerian naira relative to the US dollar has declined by 9% in the last 6 months, the South African Rand and Ghanaian Cedi, have appreciated by 11.4% and 1%, respectively.
“For instance, further details as presented in Table 1 show that in January 2021, the naira exchange to the US$ at about N377. By June 7th, 2021, however, it exchanged for about N411.
“The South African Rand, on the other hand, exchanged for about 15.14 Rand to the US$ in January and at about 13.41 Rand as of June 7th, 2021.
“Likewise, the Ghanaian Cedi, which exchanged for 1 US dollar at about 5.818 Cedi’s in January, has remained relatively stable in the last six month and even appreciated by about 1%.
“Clearly, all is not well with the naira and whatever policy is being adopted to manage it at the moment.
“The House is aware that the CBN has adopted multiple exchange rates since last year in a bid to avoid an outright devaluation. The official rate used as a basis for budget preparation and other official transactions differs from a closely controlled exchange rate for investors and exporters known as the Nigerian Autonomous Foreign Exchange Rate Fixing Methodology (Nafex).
“The Naira has traded in a tight range between N400 to N410. The Nafex rate is different from the parallel market, considered illegal by the CBN, where the Naira closed at 502.
“The House is further aware that some experts believed that Nigeria devalued the Naira to record low against the dollar on the official market; according to some traders, their strategy is to unify multiple exchange rates to boost the dollar supply through direct interventions.
“Having traded within a band of 380 and 381 to the dollar since July last year, the Naira hit a record low of 419.75 against the dollar and closed at 411.25 – the previous closing rate for the Naira on the over-the-counter spot market.
“The House is concerned that devaluation is likely to cause inflation because imports will be more expensive (any imported good or raw material will increase in price) Aggregate Demand (AD) increases – causing demand-pull inflation.
“Firms/exporters have less incentive to cut costs because they can rely on the devaluation to improve competitiveness.
“The concern is that the long-term devaluation may lead to lower productivity because of the decline in incentives.
“The House is further concerned that devaluation of the Naira makes it more difficult for Nigerian youths especially in the IT sector whose businesses are online and must necessarily transact businesses in the US dollars; it also reduces real wages.
“In a period of low wage growth, a devaluation that causes rising import prices will make many consumers feel worse off.
“The House is worried that an enormous and rapid devaluation may scare off international investors. It makes investors less willing to hold government debt because the depreciation effectively reduces the actual value of their holdings. In some cases, rapid devaluation can trigger capital flight.
“The House is further worried that if consumers have debts, e.g. mortgages in foreign currency, they will see a sharp rise in the cost of their debt repayments after a devaluation.
“This occurred in Hungary when many had taken out a mortgage in foreign currency, and after the devaluation, it became costly to pay off Euro denominated mortgages,” he noted.
To this end, the House directed its Committee on Banking and Currency to ensure compliance and report back to the House in two weeks for further legislative action.
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