Nigerias economy may be hit by hyper-inflation should the Central Bank of Nigeria carry on with plans to devalue the naira, financial analysts have said. Okechukwu Nnodim reportsSteps to check the fall of the naira against the United States dollar should not warrant the devaluation of the local currency, otherwise Nigerias economy would suffer from the effects of high inflation, experts in the financial system have said. The Central Bank of Nigeria had on Monday said it would review its target band for the naira in the next few days, stressing that depending on where the exchange rate settled, it might move its midpoint to N155/156 to the dollar, compared to its current N150. As part of the monetary tightening measures employed by the apex bank, it had said that it would maintain the naira within a three per cent band below or above N150 to the dollar, but following the pressure on the local currency as a result of ever increasing demand for the greenback, the bank contemplated shifting its position. "Well give it a few more days and see where it settles finally and then weve got to come out with a new transparent band," the Governor, CBN, Mr. Lamido Sanusi, had told reporters after an investment conference in Abuja on Monday."Both the midpoint and the band could change. Whatever it is, well let the market know very soon. Its more likely to be around N155/156 (to the dollar)," Sanusi said.Though Sanusi stressed that the banks monetary policy would remain tight for the foreseeable future in order to ward off inflationary pressures, experts believed that devaluing the local currency was not in the interest of the nation at the moment.The former acting Head, Economics Department, University of Lagos, who currently is a research professor, Kayode Familoni, told our correspondent that the CBN should rather let the naira depreciate itself rather it to be devalued.According to him, devaluation would be necessary if Nigerias financial system was in "complete disequilibrium," stressing that a lot of issues should be considered before devaluing the naira, otherwise the economy would be plunged into hyper-inflation.He said, "Devaluation is an attempt by a country that is in complete disequilibrium to stabilise it foreign exchange trade; but certain conditions must be met before devaluing a currency, for instance, there must be elasticity optimism."They must ensure that the balance of trade and balance of payment and the elasticity is met. Defending the naira by raising it to N155 to the dollar, I call that depreciation not devaluation. So, honestly they (CBN) rather depreciate than devalue because Nigeria at the moment is not ready for currency devaluation, otherwise we will face hyper-inflation that may be severe."Familoni noted that the increased demand in the greenback was not adequate, stressing that the apex bank should investigate the development.According to him, devaluing the local currency would result in untold hardship to the ordinary Nigerian, as mostly influential persons carry transactions using the dollar.He said, "It is mainly the elite in our societies that demand for the forex, so what is necessary is for the CBN to devise a means to manage its Forex in such a way that only those who really need it and who are ready to use it are allowed to buy."This is because what we hear as increasing demand for Forex is purely artificial. It is an artificially high demand for Forex because some people want to use the Foreign currency for round tripping at the expense of the CBN. So, devaluing the naira may have a very negative effect on the vast majority of Nigerians and as I earlier said, may lead to hyper-inflation. "Inflation already in Nigeria is in double digits, and there are concerns on the removal of fuel subsidy, and you are talking about devaluing the naira, in fact this government is trying to commit suicide!"Familoni advised that the apex bank reviewed its devaluation option and that it should investigate financial institutions or individuals whose activities often resulted in round tripping in the system.He said, "I would ask the CBN to be very cautious because I think devaluation of the naira is unwarranted at the moment and may plunge our economy into further financial crisis."They should try to curb round tripping and should check the cause of the artificial high demand of dollar, which I think is caused by selfish reasons."In October, the CBN conducted another round of forensic investigation in seven commercial banks over alleged round tripping of foreign exchange. Round tripping is the practice of selling foreign exchange sourced from CBN at the black market to make gains.According to sources at the regulatory bank, the investigation would be the second round of the CBN examination of the banks and it involved First City Monument Bank Plc, Sterling Bank Plc, Skye Bank Plc and Equatorial Trust Bank Ltd. Others were Diamond Bank Plc, Fidelity Bank Plc and Ecobank Nigeria Plc. The investigation, sources said, was part of plans by the CBN to sanitise Forex transactions in Deposit Money Banks. In September, the CBN investigated Access Bank Plc, Zenith Bank Plc, Guarantee Trust Bank Plc, and First Bank of Nigeria Plc for alleged Forex offences. Other DMBs investigated in September were Standard Chartered Bank, Stanbic IBTC Bank Plc and United Bank for Africa Plc. On the possible effects of the planned devaluation, the Managing Director and Chief Executive Officer, Universal Anchor Ltd., a research, consulting and training firm, Mr. Sesan Awoniki, told our correspondent that devaluing the naira would impact companies and would increase inflation and lending rates.He stressed that the decline in oil prices had placed pressure on the countrys Forex reserves, adding that devaluation would unfavourably affect the manufacturing sector of the economy.He said, "Sometimes developing economies find themselves in situations which can be considered tight and this might be one of them. Economic and financial conditions of this nature lead one to ask the critical question, whether the naira be defended or should our foreign reserves be defended' "The naira devaluation would have an impact on states and companies that had gone out to borrow Forex as there will be a very strong possibility that they will face constraints in meeting their financial obligations. "Nigeria produces mainly for export crude oil and natural gas and imports all other items. No doubt a devaluation will simultaneously increase inflation and the prevailing lending rates. Devaluation could trigger industry unrest in certain economic sectors within the economy which could adversely affect our already sensitive manufacturing sector and production."
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