Despite the continuous injection of Dollars into the foreign exchange market by the Central Bank of Nigeria (CBN), the value of the Naira dropped last week at the parallel market.
The Naira which had gained a substantial 30 per cent since the CBN’s efforts at boosting liquidity in late February, depreciated within five trading days by 7.95 per cent as demand rose at the parallel market.
The Naira which opened the week at N370 had declined in value during the week to N394, further widening the spread between the interbank and parallel market rates. Last week the CBN had pumped $200 million into the interbank market to meet wholesale forwards demands.
It also crashed the value of the Naira at the interbank market as well as the Bureau de Change end of the forex market to N360 and N362 to the Dollar respectively for customers seeking Dollars for invisibles such as medicals, school fees and Basic/Personal Travel Allowance.
While some customers had claimed that they could not access the foreign exchange from the banks, the CBN at the weekend stressed that there was enough forex to meet local demand for invisibles.
However, President of the Association of Bureau de Change Operators of Nigeria (ABCON) Aminu Gwadabe told said that the decline of the Naira in the parallel market was due to renewed activities by speculators in the market.
According to him, the delayed review of regulated rate for the BDC market had stirred speculators into action. “The new onslaught on the
Naira by speculators and resistance of the banking industry and the CBN status of last minute solution as revealed recently is accounting for the Naira misfortune on the market.”
Having lost $130 million in rate disparity within one week, Gwadabe said before CBN reviewed their buying rates, that BDC operators may skip Dollar purchase as they could not afford to continue recording losses.
The Naira which recorded value loss at the beginning of last week however, continued its downward slide throughout the week. Meanwhile, demand for growing exchange for investment returns repatriation continues to pile as more companies post dividend pay-out.
With the CBN priority for Dollar sales still on the real sector, machinery as well as oil sector, foreign investors’ dividends are stuck within the country. According to analysts at Afrinvest West Africa, there are still backlogs of forex demand for dividend and investment capital repatriation which are yet to be on the priority list of the CBN.
This they said will impact the capital market as foreign investors whose investment capital and dividend are still stuck would cut back on their investment in the country. “Despite the improvements in the forex market in March, we do not expect to see a significant improvement in foreign portfolio investors’ participation nor investment capital inflow for the month as investors continue to probe the sustainability of CBN’s forex market interventions and efficiency of the current market structure.”
So far, CBN has sold over $2 billion Dollars to meet wholesale forward demands, as well as demands for invisibles as the nation’s external reserves grew. The reserves which had accumulated to over $30 billion, having risen from $26 billion in January has in the last few days in March declined slightly by 0.17 per cent of $50.95 million.