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CBN urged to further devalue the naira

By on September 1, 2015

The sustained low crude oil prices will continue to put pressure on Nigeria’s revenue as well as the country’s currency, a financial market expert has said. To this end, the Central Bank of Nigeria (CBN) has been advised to allow for some level of adjustment of the naira.

The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, gave the advice at a training for financial journalists organised by Sterling Bank Plc, in Lagos at the weekend.

Crude oil prices closed higher on Friday after bouncing back from six and half-year lows. Specifically, Brent was up $2.57 to close at $50.13 per barrel. Oil saw its biggest one-day bounce since 2009 last Thursday, with North Sea Brent and U.S. light crude rising more than 10 per cent.

But Rewane reasoned that the central bank needs to adjust the nation’s currency in view of developments in the global market, saying “if you don’t do the right thing at the right time, you may do more later.”

“Sooner or later, the currency will adjust because you cannot create a synthetic situation. And your signals must be consistent and logical. If you know that you have enough money to support the currency, then why are you locking the door? So, there are some inconsistency in signal and the price,” he added.

According to him, the challenges facing the Nigerian economy presently are more of external.

“If you are a Nigerian government official and you came to power with the belief that if you fix the refineries and others, things would be fine. But the problem has gone beyond that! External imbalances are different from internal imbalances.

“Once you are integrated with the rest of the world, what happens over there affects you and you cannot run contrary and it is a question of time before you fall in line,” he argued.

The economist noted that crude oil price is determined by the market and geo-political considerations, saying that once the oil price came down, the four countries that were mostly hit were Russia, Venezuela, Iran and Nigeria.

“So, we are looking for an optimal solution. If you asked me a year and half ago, what is the floor price of crude oil, I could bet with you that it will not go below $95 per barrel and then the price was $110 per barrel. And I was considered to be one of the realistic or pessimistic observers. If you asked me six months ago, I would have said $65 per barrel. But if you ask me today, I will quickly grab $45 per barrel,” he said.

Rewane also reiterated his call for the removal of the fuel subsidy.
“Right now, the central bank is acting as the finance ministry. But I think that sooner or later, once we have the fiscal policy in place and we make the most important decision which is the subsidy on petroleum. If you take out the subsidy on petroleum and have the natural demand for petroleum products, the pressure on the naira would be reduced so much that the adjustment you have to make for the currency to get to equilibrium would not be much.

“There are two major subsidies in the economy. One is petroleum and the other one is exchange rate. We have cancelled the swap agreements, and other things, I agree. Those are necessary, but they are not sufficient,” he stressed.

 

[ThisDay]