There have been many rumours that the naira should be devalued against the U.S. dollar and other major foreign currencies. So, the eventual intervention by the Central Bank of Nigeria (CBN) has happened.
CBN Governor Godwin Emefiele announced the devaluation of the naira. Reverberating effects to economy are expected because of gamut of pronouncements like increasing Monetary Policy Rate (MPR) to 13 per cent, the adjustment of the Cash Reserve Ratio (CRR) for Private Sector Deposits and others.
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The naira devaluation will lead to a chain of reactions, many of which may not have the appropriate results, because the Nigerian economy mainly depends on oil.
The devalued naira will drive export of local products, which do not exist in the required volume for now, but will create an additional burden on the populace, the reason being that the cost of consumables, across the board, will escalate.
As the direct consequence of the raise in the base lending rate the cost of loanable funds would have risen. In such case the development will be counterproductive, and against the thrust of the government’s touted plan to create jobs.
There is the expectation that the government’s revenue, in terms of naira will move up, because of the wide exchange rate disparity between the dollar and the local currency. But the point must be made that this expectation may be unrealisable of two variables - the falling oil prices and lower crude production aggregate.
In the developed nation’s when currencies are devalued, it is to encourage exports, because the prices of local products serve as an incentive and a toast for foreign buyers. In the process, they earn foreign exchange, increase production and create additional jobs. Unfortunately, that is not the position with Nigeria.
Is there any escape-route? Certainly, but the question remains if Nigerians have been sufficiently sensitised to brace for this situation.