11 January 2015, Lagos – These are not interesting times for the naira, which entered a free-fall mode on Monday following the postponement of the national elections by six weeks by the Independent National Electoral Commission on Saturday.
The currency on Tuesday tumbled to a new record low of 200 against the United States dollar at the interbank segment of the foreign exchange market following the postponement of the elections from February 14 and 28 to March 28 and April 11 as local and foreign investors continued to be apprehensive about the country’s economy.
The naira had fallen to 196 against the greenback on Monday.
According to analysts and foreign exchange dealers, the poll delay has created panic among investors, leading to heavy demand for the greenback as investors move their funds to dollars as the fate of the local currency hangs in the balance.
It was further learnt that local investors and businessmen, who had obligations in dollars, had stated stockpiling the US currency for fears that the current trend might force the Central Bank of Nigeria to devalue the currency very soon.
“The postponement of the elections is responsible for the fall in the naira. The fear that the elections may not hold at all or turn violent is making most investors and other people to move their assets into dollars, thus increasing the demand for foreign exchange and putting pressure on the naira,” the Head, Investment Research, BGL Plc, Mr. Femi Ademola, said.
“The current trend is also making investors who have obligations to settle in dollars to take position for fear that the naira may go up or that the CBN may be forced to devalue it soon,” a foreign exchange dealer, who chose to speak under the condition of anonymity, said.
Analysts believe the naira may hit 230 or more against the dollar at the parallel market if the current trend continues.
Although the dollar sold for N210 at the street market on Tuesday, the national currency is expected to crash further at the black market if the current trend at the interbank market is sustained.
According to foreign exchange dealers, there is scarcity of dollars at the interbank market currently and this is making the rate to continue to go up.
The CBN needs to sell more dollars at the interbank market in order to calm the situation, according to the Head, Research and Investment Advisory, Sterling Capital Limited, Mr. Sewa Wusu.
He said increased margin between the official and interbank market rates might make the banks and dealers to engage in round-tripping and speculation against the naira.
“The naira is being affected by the uncertainty in the political atmosphere and its resultant effects on the economy. The current fall in the naira is a fallout of the postponement of the elections. The CBN may need to look at some of its recent policies in the foreign exchange mark with a view to addressing this current situation,” Wusu said.
The CBN explained that the foreign exchange market was understandably nervous after the decision to postpone elections, but said it was nothing to worry about.