CBN may lose control of the naira

WHILE the government appeared distracted with the coup in Niger Republic, the naira plunged further in the foreign exchange markets last week, exchanging at a record high of N955 to US$1 on Thursday, and spreading panic through the business community and apprehension among Nigerians. President Bola Tinubu and the Central Bank of Nigeria need to move fast, creatively, and pragmatically to avoid losing control of the currency and the economy.

The omens are bad. Since Tinubu pushed the CBN to merge the exchange rates two months ago, the naira’s southward descent has accelerated. The twin goals of facilitating a “realistic” rate, and eliminating the wide arbitrage gap created between official rates and informal market rates have remained elusive. At the official exchange rate of N767.76/$, the gap, and hence, room for illegal arbitrage, raced from N100/$ towards N200/$.

Absent an economic management team, direction, or cabinet, and no accompanying reforms of the regulatory agencies, all colliding with high inflation and business contraction, the naira is on track to crest the N1,000/$ mark and beyond soon, raising real fears that the CBN could lose control with dire consequences. The IMF added to the anxiety last week, saying existing “loose fiscal and monetary policies” make it difficult for the naira to stabilise.

Wale Edun, Tinubu’s longtime economic adviser and ministerial nominee, signposted N700/$ as the realistic rate, saying the higher rates are not backed by the fundamentals of the economy. The Economist Intelligence Unit’s forecast of a N1,000/$ rate up till 2027 now appear overly optimistic. Things could get really nasty well before then.

Source:punch