Naira Sustains Rally as Dollar Rush Subsides

The naira yesterday recorded major gain against the dollar, closing at N680/$ at the parallel market in a new wave of sustained recovery after weeks of depreciation.

The recovery of the local currency is linked to ease in dollar demand and release of huge dollars by forex speculators who wanted to take advantage of previous rate spike in the market.

The naira, which nearly hit N900/$ early last week, made a major comeback after the Central Bank of Nigeria (CBN) also injected unspecified volume of dollars into the market to boost liquidity.

A monitor of the market and rate quotes from forex dealers showed the naira is expected to sustain ongoing rally after buyers resisted further bargain with speculators pushing for N1,000/$ benchmark.

At the Investors and Exporters Forex (I&E) Window- now the official market rate- the naira is quoted at N441.46/$,  data on the CBN website showed. The local currency has been stable at this window used for official transactions, but bulk of retail transactions happen at the parallel market.

Hasssan Abdul, a bureau de change operator based in Ikeja, Lagos, said the volatility in the market has subsided and stability gradually returning, with speculators transacting more cautiously to avoid losses.

He said the clampdown on illegal BDC operators by the Economic and Financial Crimes Commission (EFCC) has also helped to bring stability to the market.

“Dollar to Naira exchange rate in Nigeria black market is N680/$, according to 16 sell rates shared by the traders. The coming weeks will be difficult as more businesses resume demand for dollars to import goods for end of year sales,” he said.

Analysts estimate that currency speculators will lose at least N10 billion in the coming months if they continue betting with their capital against the naira.

Forex Dealer with AZA Finance, Ikenga Kalu, said naira recovery followed decline in rush to convert soon-to-be-abolished high-value naira notes into dollars.

He said:  “While Nigerian Bureaux de Change operators have confirmed reduced demand at current parallel market levels, we expect dollar appetite to pick up again in the coming days and the Naira to resume its recent slide.”

Global Chief Economist at Renaissance Capital (RenCap), Charles Robertson, said Nigeria is in a difficult position and needs to increase its dollar earnings and other revenue to support the naira.

He said Nigeria should hike taxes, raise more revenue as the country’s current position is so bad that it has never been witnessed in the last three decades.

Robertson, who is also RenCap’s Head Macro-strategy Unit, added: “Things are not looking pretty good for Nigeria and other emerging markets. Oil production in Nigeria has fallen so badly in the last few years and oil price is also about falling more. We are going to see disinflationary policies coming because we are approaching recession,” he said.

Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said the naira is falling on the back of heightened forex demand compared to limited forex supply.

He said: “Nigerian consumers, businesses and individuals alike are facing challenges and headwinds and are reeling in an atmosphere of hopelessness. This is because of a myriad of factors.

“Notably, the precipitous fall of the naira in the forex market, the power supply shortage and now the almost unaffordable price of diesel.

“In spite of the hike in interest rates, we are witnessing what some analysts fear may become a bout of runaway inflation. Inflation is not just domestic but global.”

Managing Director, Cowry Asset Management Limited, Johnson Chukwu, said that to save the naira, Nigeria needs to build an economy that is net exporter of valuable goods and services to earn more dollars.

The EFCC has also cautioned Bureaux de Change (BDCs) against abuse of regulatory guidelines in selling dollars at the retail end of the market.

The warning came after the Central Bank of Nigeria (CBN) policy on redesigning N200, N500 and N1,000 bank notes was announced by the regulator.

In a statement, Association of Bureaux De Change (ABCON) National Executive Council, said the EFCC advised all licenced BDCs to be extremely careful in their day-to-day operations by requesting customers’ information during transactions.

The agency advised BDCs not to be involved in cash couriers, which remains serious infraction that can lead to prosecution of perpetrators.

“The BDCs are also advised to render regulatory returns. They are the gate keepers to the economy and their directors will be keenly monitored by the CBN and security agencies,” it said.

The CBN had previously warned domestic and foreign investors against patronising the parallel market, saying it was helping to overheat that market.

CBN Governor, Godwin Emefiele, warned firms and individuals against patronising the parallel market which he said was helping to overheat the foreign exchange market.