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Offloading of dollars triggers massive naira appreciation at parallel market

By on April 5, 2015

The peaceful outcome of the recently concluded presidential election has seen massive offloading of the United States dollars at the parallel segment of the forex market since Monday.

This has also seen a significant appreciation of the naira at that segment of the market as politicians, investors and other currency users in the country who hitherto were storing the greenback for fear of post-election violence have been flooding the market with the greenback.

Specifically, the naira which had been hovering between N215 and N222 to a dollar since this year closed at N200 to a dollar on Friday. However, at the interbank market, the naira has remained at N197 to a dollar

“The dollar supply in the market presently is more than the supply and that is why we are seeing the current level of appreciation in the parallel market,”
Alhaji Yusuff Ganiyu, who trades in foreign currency in Marina, Lagos, said.

Currency analyst at Ecobank Nigeria, Mr. Kunle Ezun told THISDAY that the outcome of the presidential election was in line with analysts’ projections.
“The emergence of Buhari connotes positive market sentiment. A lot of people thought there would be post-election violence, but that phone call from President Jonathan completely changed the perception about Nigeria in the international market.

“Also, because of the fact that a lot of people anticipated that the dollar might fall, they are selling dollars and this is one of the reasons the naira is appreciating in the black market,” he explained.

The naira had slumped 18 per cent against the dollar as oil prices collapsed by almost half since June. This had prompted Central Bank of Nigeria (CBN) to lower banks’ trading limits and introduce a new dealing system in February that prevents lenders from buying dollars on the interbank market without matching orders from customers needing to import goods.

“One of the first big challenges the new government is going to have to face is what on earth to do with the naira,” Samuel Vecht, who oversees $2.7 billion in five emerging-frontier-market funds at BlackRock told Bloomberg recently.
“Steps have to be taken to ensure reserves don’t keep falling.”

Analysts at Renaissance Capital Limited specifically noted that the collaboration would ensure that corruption, wastage and revenue leakages, among others, are tackled.

The report added: “Overall, our views are mixed on the implications of a Buhari victory for Nigerian banks. Investors see the asset quality risks but given where valuations are, they have been waiting for three things to justify a re-entry: a recovery in oil prices; fairer valuation of the naira, and some level of comfort on the political environment. Oil prices have recovered somewhat from their 2015 lows but remain a wild card.”

Buhari’s win over President Jonathan marked Nigeria’s first democratic transition of power from one party to another since independence from Britain in 1960.

The naira’s current interbank value is appropriate and the discrepancy between that and the parallel rate isn’t an indication that it’s under pressure, the CBN Governor, Godwin Emefiele had said at the last Monetary Policy Committee meeting between March 23 and 24.