Every country has its own challenges and faces tough times resulting mostly from economic crisis, religious or tribal wars, natural disasters, and the likes. Each country equally has its own way of handling the challenges presented each day for the constant the growth of the country in particular. With the recent naira devaluation, Nigeria has proved to have more problems than imagined. Recently, the Monetary Policy Committee (MPC) of Nigeria’s Central Bank devalued the country’s naira from N155 to N168 with Bureau de Change (BDC) rates reaching up to N208 to a dollar. With the highly noticed fall in global oil prices and the depleting foreign reserves, the MPC has run out of options on how to stabilize Nigeria’s economy. These general economic decisions have intense micro-economic implications given that Nigerians will certainly see the effects in their wallets starting from the worth of the cash they have on hand to their ability to borrow.

1. Your 1000 Naira is now Equal to 900 Naira:

nairaall

Although your N1000 is still N1000 in amount, its worth is no longer the same. Initially, when naira wasn’t devalued, Nigeria’s fixed foreign exchange rate was pegged at N155 to $1, but Nigeria’s foreign exchange rate has been raised and is currently fixed at N168. This 3.89 percent increase might actually seem slight to many but it is not because it means the same percentage decrease in the worth of your cash and hence one would need N1000 for what was previously worth N900 so you simply lost N100 for every N1000 you had overnight.

2. Naira-Dollar Beat Down:

money

The aforementioned decrease in worth is viewed as being minor when compared to other effects in a more literal sense because the floating exchange rate (market driven rate) makes it even worse. The market-driven rate or in a more simple sense, The rate that Bureau de Change charges for a dollar is currently pegged at close to N200 – $1, falling almost 20 percent in since the announcement was made in November, and economic analysts estimate it could even fall further to N210 – $1.

The implication is that the worth of N100,000 crashes even lower when using Naira in transactions that directly involve the dollar. For instance, shopping online from the US. However, MPC made the naira devaluation decision to stabilize the free fall in the floating exchange rate which according to CBN Governor, Godwin Emefiele, is the most useful and feasible policy option available especially at this time of increase in demand for foreign exchange and a decrease in the price of oil.

In addition to this statement by CBN Governor, the Head of African Research at Standard Chartered Bank, Razi Khan told Reuters that the body responsible for regulating money made the appropriate move by making a slight increase in the official mid-rate which was N158 -1$ to the current mid-rate pegged at N168-1$ considering the higher inter-bank rate which to a great extent is market determined.

3. Your Shopping Just Got More Expensive:

dollars

The Naira’s devaluation will certainly result in steady inflation in the economy and this will invariably make your groceries more expensive. So darlings expect a constant spike in the prices of most of the things you purchase every now and then. Besides analysts estimate, Nigeria may suffer a double-digit inflation, and some other persons predict a rise to 10.5 percent from the present 8.1 percent.

More so, Reuters report that the persistent decrease in the worth of naira would lead to increase in the cost of importation which will surely make imported goods more expensive. This should pose huge worry to you because Nigeria is not focused on production and does not encourage real production class.

In 2013, a Maersk report placed Nigeria’s trade ratio at 91 percent import to 8 percent export, so this is made worse since the main contributor to the faint export ratio which is oil has now collapsed in price. The impact of these extra costs will definitely weigh much on the final consumers not even on the retailers nor the importers. To curb continuous inflation, Central Bank made an announcement that it has made up to one percent increase in the lending interest rate i.e from 12 percent to 13 percent.

4. Your Holiday Trip May Have To Be Called Off:

Chart of Naira vs Dollar

Nigerian currency versus American Dollar

For those making plans of travelling outside Nigeria for vacations, here is a big news for you, revisit your budget analysis and make some changes. Your former Naira to dollar conversion needs to be calculated all over again using different a data, anyway this does not apply to those who already have their money in the dollar. The recent negative theories surrounding the Nigerian currency could even make it possible for it to cost more when purchasing dollars outside Nigeria.

5. Borrowing Is Also Made Worse:

nigeria-interest-rate

Devaluation of the naira will also make borrowing from financial institutions even worse. Although part of the increase in lending rate from 12 percent to 13 percent by Central Bank  is to procure measures of trashing out the said problem, The resultant effect of increasing the Monetary Policy Rate MPR is that  access to loans will be decreased because interest rate which has been unreasonably high will be made higher by deposit banks since banks use prevailing market rent.

However, the Central bank says this is done to check the level of liquidity so that too much cash won’t have to be in the bank while they address the sources of increased demand for foreign exchange.

6. The Threat to Nigeria’s Economy:

Economic Analysts made it crystal clear that in spite of the unfavourable effects of devaluing the naira, the situation would have been made even worse if it was done. According to South African-based NKC Research, the brazen move made by the Central Bank will help very greatly to stabilize the current drawbacks in foreign exchange reserves.

The agency also said the sudden reduction in the worth of the inter-bank exchange rate recently would have increased the cost of imports in the absence of official or formal devaluation of the Naira. Central Bank, on the other hand, has made relentless efforts before now to hold up the value of the currency but it seems almost impossible.