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Naira falls below Central Bank’s band at parallel market

By on December 26, 2014

Although the Central Bank of Nigeria (CBN) has maintained that the post-devaluation band for the naira is “appropriately priced,” the nation’s currency is currently trading outside the band at the parallel market.
THISDAY gathered from some parallel market traders in Apapa, Lagos that the naira sells at about N187 to a dollar.

Also, a report by Reuters showed that the black market hawkers in other parts of Lagos sold the naira around 3-5 per cent below its floor in the run-up to Christmas.

Despite an eight per cent devaluation of the target band and efforts last week to crack down on currency speculation by squeezing liquidity, the naira remains at record lows.

But while the central bank and the interbank markets argue over the naira’s fair value, it’s harder to argue with the price on the streets where many dollars are bought and sold, Reuters stated.

The CBN had devalued the naira and widened its target trading band to N160-N176 against the dollar, but few analysts believe that can hold, given a steady decline in reserves.

Last week, when the naira hit a record low, it was traded as low as N190 to the dollar, some 6.5 per cent below the lower end of the bank’s target band.

“The naira’s come back a bit because people are wanting more of it now ahead of Christmas,” said Ibrahim Sanni, standing by a palm-lined Lagos hotel adorned with Christmas decorations.
“Last week we bought at 190, lower than ever.”

But he added that trading has been very slow since the end of November, when the central bank devalued the currency.
The naira has been hit hard in recent months by a steep fall in the price of Nigeria’s main export, oil.

The CBN also introduced new policies last week banning banks from holding their own funds in dollars and decreeing that dollars bought from the interbank market can be held only for up to 48 hours. Trading has
almost ground to a halt since the measures were introduced.

The rise in the dollar in heavily import-dependent Nigeria has caused pain ahead of the Christmas shopping season, with small-scale retailers saying sales were badly hit.
“Even in Christmas week, they aren’t buying,” said Bola Maja, 40, who runs a clothes shop in Lagos.

The CBN Governor, Mr. Godwin Emefiele had attributed the continuous pressure at the forex market to the dwindling supply of the United States dollars as well as a rise in the demand for the greenback.
The CBN governor had pointed out that the slide in crude oil price, which has led to a reduction of earnings to the country has also resulted to drop of US dollar inflow to Nigeria.

He said the central bank had spent huge assets from the foreign reserves during the year in ensuring that the official exchange rate was maintained at its previous value of N155/$1.

He explained: “We must remember that in an import-dependent country like ours, the exchange rate operates like every other price in the market. The forces of demand and supply basically determine movement of the naira.

 

[ThisDay]