Market in confusion as naira
exchanges at N373 to dollar
by Collins Nweze, Finance Correspondent, July
21, 2016 at 12:36 am in Featured, News
There was confusion in the market yesterday
as the naira slumped to a new low in both the
official and parallel markets, exchanging at
N292.90 and N373 to the dollar.
The local currency however closed at 292.90
to the dollar on the interbank rate after just
one transaction was carried out, with dollar
supply drying up and no intervention by the
CBN, traders said. Traders had expected the
CBN to intervene to ease dollar shortages, but
that did not materialise.
The naira’s free fall surprised many
stakeholders, whose thinking is that the new
flexible forex policy introduced by the Central
Bank of Nigeria (CBN) would stabilise the
Bureau De Change Operators of Nigeria
(ABCON) President Aminu Gwadabe said
commercial banks were playing big in the
parallel market, manipulating naira rates
against the greenback. He told The
Nation that most lenders keep two books –
one for the official rate and the other for
dispensing dollar in the parallel market.
emand at the parallel market is rising
seriously. The banks are now playing big in
the parallel market and there is basically no
operating rules in the market. It is a market of
who is who controlled by the banks,” he said.
The BDC chief said CBN Governor Godwin
Emefiele should call an emergency meeting of
all stakeholders on the fate of the local
currency. To him, this is the only way out
because “things are getting out of hand” as
the market liquidity has dropped.
Nigeria has been grappling with a currency
crisis since crude oil prices dropped by about
43 per cent from an average of $100.35
throughout 2014 to an average of $57.20 for
the first six months of last year. It is now
around $48.09 per barrel.
Specifically, the drastic fall in the price of
crude oil, which constitutes the largest
component of Nigeria’s forex reserves, has
cut dollar earnings from about $3.2 billion
monthly to about a billion dollar for the same
period. This has negatively impacted on the
value of the naira.
The woes of the naira will worsen in the
coming months, with the local currency
expected to exchange for N390 to the dollar
at the close of the year, a report by
Renaissance Capital (RenCap), an
international investment and research firm,
Currency traders introduced a maximum resale
premium on dollar trades to try to boost
liquidity while investors have welcomed the
removal of currency controls but many are
still steering clear until the economy shows
signs of a concrete recovery.
“Most investors would like to see a more
liquid forex market before resuming purchases
of local assets,” said Samir Gadio, head of
Africa strategy at Standard Chartered Bank.
“Given the significant discount of naira-settled
futures, a number of offshore financial
institutions and hedge funds could be tempted
to get involved in the foreseeable future.”