Feb 19 (Lagos) - It is now 400 Naira to 1 US Dollar in the parallel market while the inter-bank rate is still around 199 Naira to 1 Dollar. So the difference between the two rates is now more than N 200 Naira. That is a 33% fall in less than one month if you account for weekends.
It took only 36 days for Naira to fall to 400 from 300 it touched on Jan 13 of this year.
One can only wonder how many days it will now take the Naira to hit 500 against the USD .
The problem is that CBN only has less than $ 28 billion in reserves.
The CBN has stopped supplying forex for importation of 41 items and that is pushing importers of those 41 items to source Dollars in the parallel market at whatever rate they can get.
The situation is hopeless.
CBN itself has played a big part in this situation. Firstly the CBN cut interest rates in November 2015 at a time when they should have increased them to protect the Naira. Naira has never looked up since the day CBN made the decision to cut interest rates, a decision that is usually taken to weaken a currency.
Secondly they stopped supplying USD to Bureau De Change operators in January around the time Naira was around 265 to the Dollar.
So we can go on and on about this but the reality is that Naira is going to hit 500 very soon.
And until crude oil prices go up, do not expect the Naira to recover even to late 2015 levels. That means foreign investors will star away from Nigeria and local investors will be more interested in buying Dollars than stocks.
There are still 3 things CBN can do to save the Naira.
1) Call an emergency meeting of the Monetary Policy Meeting
2) Increase Benchmark Interest Rate to 18% temporarily.
3) Start selling Dollars at the official exchange rate of 200 or devalue it to 250 but supply the market so the parallel rate can come back to normal levels. The problem with this scenario is that the CBN will run out of Dollars defending the Naira and then the parallel rate will fall back again.
The long term solution is to diversify the economy and start refining crude oil in Nigeria. But that is going to take years to do. So right now all the CBN can do is take the above 3 steps and start to diversify the economy. And hope for the crude oil prices to rise up.