The naira fell to 360 against the United
States dollar at the parallel market on Wednesday as the supply of the
greenback waned at the foreign exchange market.
The local currency had closed at N354 against the greenback on Tuesday.
The naira has been experiencing high
volatility since the beginning of the week, as supply gap at the
interbank forex market continues to weigh on the parallel market.
The naira, which closed at 348 against
the greenback at the parallel market on Friday, dropped to 351 on Monday
before plunging further to 354 on Tuesday.
Foreign exchange dealers, who linked the
development to dollar scarcity, said inadequate liquidity in the forex
market was making the naira to depreciate very fast.
Currency analysts and experts said there
was a need for the Central Bank of Nigeria to address liquidity issue
at the interbank market in order to resolve the matter.
“It all comes back to liquidity, that is
what drives the market, the Chief Executive Officer, Nigeria,
Renaissance Capital, a United Kingdom-based investment bank, Mr. Temi
Popoola, said.
Corroborating this view, a currency
analyst at Ecobank Nigeria, Mr. Kunle Ezun, said, “It is basically one
thing – the supply side; activities are still currently low at the
interbank market
“Nothing much is really happening on the
supply side of the market. Liquidity issue is still there. We actually
felt that foreign investors should have been coming in by now.”
The President, Association of Bureau De
Change Operators, Aminu Gwadabe, said the volatility at the parallel
market this week could be traced to the activities of currency
speculators.
The naira had recorded relative
stability against the dollar throughout last week, trading between 246
and 248 at the interbank market.
The ABCON president, however, said
supply was still an issue, noting that currency speculators were taking
advantage of the supply gap at the interbank market to fuel spike in the
exchange rate at the parallel market.
Gwadabe explained, “A huge amount of
demand is going to the parallel market. People can’t even get $1,000 for
their Personal Travel Allowance; banks said they didn’t have. I think
there is a need for the CBN to do something about the forex distribution
channel. I believe it is only the BDCs that can do the distribution
effectively.
“As much as possible, we want to be
patriotic and work with the regulators as BDC operators. The parallel
market operators are happy with this spike. It is high time the CBN
checkmated this spike. The BDCs can be empowered by giving them access
to the Diaspora remittances or the CBN window.”
Gwadabe said the significant influx of
illegal forex operators from neighbouring countries was further
compounding the exchange rate spike problem.
RenCap’s Popoola said liquidity could come to the interbank market if certain steps were taken by the government.
He stated, “Liquidity currently comes
from only one source, the CBN. We can also get liquidity into the market
through remittances, portfolio investors and foreign direct Investment.
How do we do it? The answer is the price level. There is a price level
that will drive liquidity into the market.”
However, he added that the forex market
was still anticipating what would come out of the maturity of the first
future transactions after the introduction of the new flexible forex
regime.
“About $700m is due next week; everybody
is looking forward to the maturity of the first forward transactions.
So, the market appears to be in a wait-and-see mode. So, let us see what
happens next week,” Popoola said.
The naira closed at 283.75 against the
dollar at the interbank market on Wednesday. The external reserves were
$26.3bn on July 12.
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