Devaluation after Undervalue Naira Tantrum Confused FX Speculators
Currency speculators have rough days in the foreign exchange market following exchange rate unannounced exchange rate swings at the official market. The new FX regime eliminated gap between official and parallel market as monetary policy authority accused banks for sharp practices.
Nigeria government re-devalued the naira further after Central Bank governor pitched that the local currency was undervalued. Caught between forex market dictates and internal appraisal, official exchange rate crossed the long red line for the first time in history.
Naira trading at 1500 per US dollar at official window was the last straw that broke the camel back in an economy that depends largely on imported goods and services. No investment banking firm –local or foreign –come close to the large devaluation booked in the forex market.
Last week, FX spot rate at the Nigeria autonomous forex market spiral downward by 51% in a day as invisible hands of the monetary authority touched official exchange rate. In June, naira was devalued by 40% amidst price instability.
Still, the outlook is uncertain as the CBN adopts willing seller and buyer model as it seeks a market clearing rate. FX gap has reduced strong. Currently, exchange rate is cheaper at parallel market than official market as analysts predict there could be further swing.
In what appeared like inconsistency about the value of the naira, the apex bank Chief Yemi Cardoso had told investors conference that the local currency is undervalued but few days later called for further depreciation.
Speaking at the recent Nigeria Economic Summit Group (NESG) event, the CBN Governor, said that the Naira was undervalued and promised to work towards real price discovery in the foreign exchange market.
Some critics are asking why did CBN governor made a speech that sent the market to rest and do another thing few days after. The battle to save the naira started under President Bola Tinubu to complement other reforms.
The fast and furious economic reform has however thrown Nigerians into a ditch. Both companies and individuals are groaning due to worsening key macroeconomics indicators. Inflation rate is expected to worsen in 2024 due to exchange rate pressures on prices.
In the forex market, currency speculation took new dimension under the watch of former central bank governor, Godwin Emefiele despite effort to tame infractions by market players. #Devaluation after Undervalue Naira Tantrum Confused FX Speculators#