By Emeka Chiakwelu
Here comes the big trouble, for with floating of naira comes massive devaluation,
Hyperinflation and higher interest rate.
Nigerian government has finally bowed to recommendation by masterly International
Monetary Fund (IMF) to devalue naira by allowing the embittered currency to
float. Nigerian government cannot be accused of dithering; the government held
his own but oddities and authoritative IMF finally have their way.
The governor of Central Bank of Nigeria (CBN), Godwin Emefiele has stipulated
that naira value will be determined by the forces of the market grounded on the
law of demand and supply.
Therefore from June 20, naira will be allowed to float, subsequently bringing
with it massive devaluation and further weakening of naira. CBN has earlier
pegged naira at about 197 to a dollar, but the apparent value of naira
determined at the parallel market stood at about 340-350 to a dollar.
When the pegged on naira is finally removed and floating commences, the outing
prevailing naira rate at forex may climb up to 400 to dollar higher than the rate
at parallel (black) market. The possibility and probability are imminent
because there is not enough dollars to sell to ‘hungry’ buyers. The demand for
dollars by the “selective dealers” will surge with inadequate supply,
simultaneously deteriorating the intrinsic purchasing power of naira at the
monetary base.
The weakening and devalued naira will depressed the currency purchasing power
due to the emerging hyperinflation. Take note of the word ‘hyperinflation’
this is not your ordinary inflationary trend.
Hyperinflation can be describe as super inflation attributed to declining naira value, economic recession and paucity of food products/essential materials in the market. With consecutive negative contractions of two quarters, recession will be apparent. Already the GDP has a negative growth of 0.4 percent in the first quarter of the year.
Hyperinflation can be describe as super inflation attributed to declining naira value, economic recession and paucity of food products/essential materials in the market. With consecutive negative contractions of two quarters, recession will be apparent. Already the GDP has a negative growth of 0.4 percent in the first quarter of the year.
Inflation rate is 71.59% not 15.6%
According to National Bureau of Statistics, the country’s inflation rate is at
six year high of 15.6 percent but many economists are not seeing eye-to-eye on
the accuracy of the given number.
Prof. Stevie Hanke , the applied economist at Johns Hopkins University and
director of the Troubled Currencies Project at Cato Institute disagreed with
the given inflation rate. He professed that the discrepancy on the modus of the
tabulation of Nigeria's inflation rate does not reflect the true reality of the
higher inflationary trends.
Therefore using the formula by Prof. Hanke to calculate Nigeria’s inflation
rate:
(official data) × (lie coefficient) = real estimate: Then the real inflation rate will be 71.59 percent
(official data) × (lie coefficient) = real estimate: Then the real inflation rate will be 71.59 percent
With prices of rice, garri and yam going beyond the reach of average Nigerian
family. How do Obi, Dele and Bello feed their families? The floating of
naira and its ramifications are not making things better at
the foreseeable future.
the foreseeable future.
The astringent tightening tool of CBN’s monetary policy cannot tame hyperinflationary
trend by the raising of interest rate. The reality is that the
macroeconomics oddities and dislocations are beyond the
application of the waned CBN’s monetary policy. The Nigeria’s interest rate at 13 percent is bound to be raised higher notch up by CBN to 14-15 percent to rein in the rising inflation. The move will spell more misery to Nigerian business community, for the subsequent mopping of liquidity will dry up credits and invariably making borrowing more expensive in the illiquidity market.
application of the waned CBN’s monetary policy. The Nigeria’s interest rate at 13 percent is bound to be raised higher notch up by CBN to 14-15 percent to rein in the rising inflation. The move will spell more misery to Nigerian business community, for the subsequent mopping of liquidity will dry up credits and invariably making borrowing more expensive in the illiquidity market.
(Chiakwelu
is Principal Policy Strategist at AFRIPOL)
WOW!!!, .,.. CRAP!, CRAP!!, CRAP!!!
ReplyDeleteNow these crap will be visited upon the hapless souls of ordinary Nigerians who never directly contributed to this ECONOMIC MALAISE OF GARGARTUAN PROPORTIONS.
YET, THE INSUFFERABLE LAW MAKERS ARE FEVERISHLY CONSPIRING TO GRANT SARAKI AND HIS CO-HORTS, IMMUNITY FROM PROSECUTION FOR FRAUD, FORGERY, EMBEZZLEMENT AND RELATED OFFENSES OF THEFT ..! GO FIGURE!, WHAT A GALL!!