The naira depreciated to N588 per dollar at the parallel market as the nation’s foreign exchange (forex) reserves dropped for the third consecutive time.
Trading reports at the weekend showed that naira depreciated by 0.9 per cent to close at N588 per dollar at the parallel market, where most independent users source forex. It, however, closed flat at the official Investors and Exporters (I & E) market at N416.33 per dollar
Nigeria’s forex reserves declined for the third consecutive week to close at $39.52 billion; a drop of $145.51 million, despite the rise in price of Bonny light to $119 per barrel.
Total turnover at the I & E window declined by 85.8 per cent to $70.97 million, with trades consumed within the N419.98 and N453.25 per dollar band.
At the Interbank Foreign Exchange market, naira closed flat at N430 per dollar. The Central Bank of Nigeria (CBN) continued its weekly injections of $210 million with $100 million allocated to Wholesale Secondary Market Intervention Sales (SMIS) and $55 million each allocated to Small and Medium Scale Enterprises (SMEs) and invisibles.
“In the new week, we expect some level of pressure on the naira against dollar as pre-election activities garner momentum even as the ruling APC holds its national convention,” analysts at Cowry Asset Management stated.
Analysts at Cordros Capital maintained that while the CBN might have enough supply to support the forex market over the short term, such support is not sustainable over the medium term, in line with expectation that accretion to the reserves will be weak given that crude oil production levels remain quite low.
“Hence, we think further adjustments in the naira-dollar peg closer to its fair value and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market” Cordros Capital stated.
A non-executive member of the CBN’s Monetary Policy Committee (MPC), Prof. Micheal Obadan, has identified factors that contributed to the poor performance of the naira in the foreign exchange market to include: sluggish foreign capital inflow; speculative activities and sharp practices of authorized foreign exchange dealers, including the profiteering of bureau de change operators in recent years.
He added that other factors were weak production base and the un-diversified nature of the economy, noting that available productivity per hour data shows Nigeria’s productivity is very low compared to other countries.
Obadan said the high propensity to import and import-dependent production structure, compounded by trade liberalization, have also contributed to the weak state of the local currency.
He said the apex bank has implemented various strategies, policies and measures to enhance liquidity in the foreign exchange market and ensure the stability of the exchange rate.
The apex bank has also implemented development finance interventions which have implications for foreign exchange supply and exchange rate stability.
The apex bank last week said the policy stopping weekly dollar allocation to Bureaux De Change (BDCs) operators has stabilized the naira.
In his remarks at the opening of the 32nd Seminar for Finance reporters in Akure, Ondo State, CBN Governor Godwin Emefiele said the naira has remained largely stable at the Investors & Exporters window, particularly since the stoppage of forex allocation to BDCs.
He said that the local currency was converging between the CBN and the Nigerian Autonomous Foreign Exchange (NAFEX) rate.
According to Emefiele, banks can now meet the demands of customers seeking forex for Small and Medium Enterprises (SMEs), school fees, medical and Personal Travel Allowance (PTAs).
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He said Nigeria’s current account deficit has narrowed significantly due to a surplus position in the goods account.
Emefiele said: “The surplus position in the goods account is occasioned by a reduction in imports, increase in crude oil and gas export receipts, and improvement in remittances. Remittance inflows have been supported by our ‘Naira for Dollar’ scheme, and we have seen a surge in remittance inflows.”
The apex bank, the CBN governor said, has in its sustained effort to reduce foreign exchange demand pressure and facilitate investment, signed on April 27, 2018, a three-year bilateral currency swap agreement of $2.5 billion, equivalent to ¥15.0 billion or N720 .0 billion with the Peoples Bank of China (PBoC.), adding that the CBN/PBoC partnership has worked well and yielding positive results in terms of meeting genuine demand for foreign exchange and exchange rate stability.
Emefiele also lamented that Nigeria’s huge external debt servicing practice has contributed to the depletion of the nation’s external reserves, saying the apex bank’s methods (especially in the management of financial system liquidity, forex market and development financing initiatives) have been able to optimally balance the delicate objectives of price stability and real output growth.