Analysts and market players have reacted to the devaluation of the naira announced on Monday by the Central Bank of Nigeria (CBN).
While the move was seen as most expedient given the current state of the economy, the underlying fact is how well Nigeria can turn an otherwise bad situation to an advantage.
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The CBN had announced a new dollar-naira mid-rate at N155, and the extension of the band around the naira, allowing it to trade within a N150 – N160 to the dollar range while leaving all the other rates unchanged.
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Bismarck Rewane, managing director of Financial Derivative Company Limited, a financial and investment advisory firm told LEADERSHIP that the decision was appropriate. “This will level up imbalance in the system. Going forward, we will see greater equilibrium, volatility will reduce,” which according to him is good for the economy.
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In addition is the expected implication for the stock market which has been on the decline for much of the year. Muhammad Kurfi, managing director of APT Securities and Funds Limited, a stockbroking and investment firm, said the devaluation would bode well for the stock market.
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He said, “The devaluation will make the stock cheaper and will make our market more to foreign investors. Now it will be easier for the foreign investors to determine their returns.”
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According to him, the foreign exchange risk will be reduced as investors will be able to calculate their returns since the currency will be more stable.
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He, however, decried the low manufacturing base of the country which he said would rob the country of the other benefits of currency devaluation.
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“We are an import-dependent economy which means that currency devaluation will make imports more expensive, thus fuelling inflation. Devaluing the currency is supposed to help local manufacturers as it will make their goods cheaper than the imported ones.
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“The announcement merely plays catch-up with where the market already finds itself”, Razia Khan, Regional Head of Research, Africa Global Research, Standard Chartered Bank, London said.
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Samir Gadio, analyst with Standard Bank, London said the country’s inability to rebuild foreign exchange reserves, which stood at $33 billion on November 15, and oil-related savings despite the relatively positive external environment will continue to weigh negatively on confidence on the naira.
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