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 currency.
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.
“Demand 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, said.
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.”