Nigeria’s House of Representatives has introduced a resolution calling on the country’s central bank to end the continued devaluation of the naira. In a unanimously adopted resolution, House Representative Bamidel Salam warned the Central Bank of Nigeria (CBN) of negative “implications of further devaluation of the naira”.
MPs slam CBN U-turn
The House warning follows the CBN’s recent decision to devalue the naira from an exchange rate of 393 to currently under 411 naira for every dollar. Moreover, the call for intervention by Nigerian lawmakers comes just days after the currency depreciated marginally against the US dollar in the black market. At the time of writing, the selling rate of naira on the black market was 502 against the dollar.
Meanwhile, a report good Pointing to the salute, CBN Governor Godwin reminds Amphile of his earlier stance on currency devaluation. before naira devaluation In May 2021, Emefiele repeatedly defended the country’s overvalued exchange rate. She also Slammed Parallel market traders to promote continued depreciation of Naira on the forex black market.
Nevertheless, expressing his displeasure with CBN’s exchange rate policies, Salam said:
The House is concerned that devaluation is likely to lead to inflation because imports will be more expensive – any imported goods or raw materials will increase in price; Aggregate demand increases, causing demand-pull inflation. Firms/exporters have less incentive to cut costs as they can rely on devaluation to improve competitiveness.
Salam says MPs are now concerned that any “long-term devaluation (of Naira) could lead to lower productivity due to a drop in incentives.”
CBN abandons multiple exchange rate policy
Since the year 2020, the CBN has adopted a multiple exchange rate policy as it has sought to avoid outright devaluation. For example, Nigeria’s previous official exchange of 393 naira to one dollar “was used as a basis for budget preparation.” On the other hand, the Nigerian Autonomous Foreign Exchange Rate Fixing Method (NAFEX) is a closely controlled exchange rate for investors and exporters.
Following the devaluation of the Naira, both the official exchange rate and the NAFEX are now pegged at 411 against the dollar. Meanwhile, Salam is also cited in the report to explain some of the potential effects of the rapid devaluation on the ability of the Nigerian government to raise funds. The legislator said:
“This makes investors less inclined to hold government debt because depreciation effectively reduces the true value of their holdings. In some cases, rapid devaluation can trigger capital flight.”
Do you agree that devaluation of Naira will lead to inflation? You can share your thoughts in the comment section below.
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