26 February 2016, Lagos — Speculative demand for foreign currency has reversed the recovery trend in the naira value as the local currency traded at N340/$, yesterday, in major parallel market centres across Lagos.
This came against the moves by the government to pull off pressures on the currency market which had resulted in the speculative bout that threw naira into all time low value of N400/$, last week.
Meanwhile, there are also strong indications that the efforts of the Central Bank of Nigeria, CBN, to stabilize the Naira may have started yielding the expected results as feelers from two officials of the apex bank, who pleaded not to be named, indicated that the deployment of a number of measures by the apex bank may have turned the tide in the forex market, leading to severe punishment for currency hoarders and speculators.
Up till Wednesday, the naira had continued its appreciation against the dollar in the parallel market, bottoming out at N295, showing about 26 percent gains within three days.
Investigations indicated that speculative demands had re-surfaced, following the huge appreciation in the parallel market which had lasted for three days as demand dropped.
Parallel market dealers disclosed that immediately the currency rate trended below N300, suppliers pulled back while demand surged.
Asked why the diametrical market behaviour, the dealers were of the view that suppliers might have obtained their supplies at margins that could make selling unprofitable at rates below N300/$.
Yesterday’s depreciation became the steepest so far as the local currency was down by 35 percent in just one trading day, and dealers see further depreciation this weekend.
New fuel import strategy may rescue naira
The trend reversal was coming at the backdrop of alleged moves by the Federal Government to enlist the support of the international oil companies, IOCs, in funding fuel importation outside Nigeria’s foreign exchange resources.
This development, which a source said began the previous week, may have taken a lot of demand pressures off the Nigerian foreign exchange market while freeing the reserves for other end users.
Foreign exchange allocation for fuel imports makes up one of the largest portions of the demand profile of CBN’s foreign exchange utilisation schedule.
It was learned that though the Nigerian National Petroleum Corporation, NNPC, has its own foreign exchange resources, it prefers relying on the CBN resources for funding its fuel importations.
Analysts believe if the new import arrangement is fully in place, the current huge pressure on the scarce foreign exchange resources may tone down the exchange rate.
Mutallab blames forex crisis on fuel import
Meanwhile, Chairman of Jaiz Bank, Alhaji Umaru Mutallab, has blamed the current foreign exchange crisis in the economy on the massive importation of petroleum products and food items.
He spoke at the Daily Trust Board Economists’ Breakfast Meeting, in Abuja, yesterday.
His words: “The first and greatest cause of the current foreign exchange problem is the huge importation of petroleum products into the country. I believe the solution lies in modular refineries and to ensure that our refineries are working.”
According to him, if the nation produces its fuel and by so doing eliminating the massive allocation of foreign exchange for petroleum products importation, the current crisis in the market would not have existed.
Mutallab also urged greater investments in the agricultural sector, noting that food import into the country was a second major area of challenge for the nation.
Central Bank Governors, Mr. Godwin Emefiele, had said at the ground-breaking ceremony of Dangote Refinery in Lagos mid-January that Nigeria was spending about 38 percent of its daily forex allocation on the importation of petroleum products.
In his remarks, chairman of the board, who was also chairman of the breakfast meeting, Prof. Ode Ojowu, raised concerns that there was need to build a consensus on the clear economic policy direction for the nation, in spite of divergent interests, to create the needed synergy for an accelerated economic growth in the country.
CBN’s efforts to stabilize naira yielding result
The CBN had said speculators were behind the market bubble since the upper week which made a mincemeat of the naira, sending it crashing to an all-time low of N400 to the US dollar.
The CBN Governor, Godwin Emefiele, had accused speculators of conniving with bureau de change operators to undermine the efforts of the bank at propping up the naira and warned that such speculators would eventually be punished by the market.
On Wednesday, the Naira at the parallel market exchanged for about N295, a further improvement on the N305 to the dollar on Tuesday, garnering over N100 gain on the panic by speculators struggling to cut their losses.
Industry analysts say that a number of measures taken by the apex bank lately might have led to this improvement, including the decision to publish all forex sales from the inter-bank market to make for unprecedented transparency.
The second is said to be the mop-up operations of the CBN, which had reduced the excess liquidity behind the high speculation of the upper week. These steps are said to have made the naira ‘relatively scarce’.
*Omoh Gabriel, Emeka Anaeto, Emma Ujah and Clara Nwachukwu – Vanguard.