No reprieve for battered Naira

BY EMEKA EJERE

There are indications that activities of currency speculators and perpetrators of other forms of sabotage may continue to delay the fruition of steps being taken by the Central Bank of Nigeria (CBN), the liquidity crisis in the nations foreign exchange market.

The naira had weakened at the parallel market after the Central Bank of Nigeria (CBN) devalued the official exchange rate by 7.6%, replacing it with the managed-float figure used for investors and exporters.

Consequently, the local unit sold for N495 per dollar on the street on Thursday from 486 on Monday, according to abokifx.com, a website that collates parallel rates in Lagos. The naira opened at N411.08 on the investors and exporters window, otherwise called NAFEX.
Analysts say the unregulated naira exchange-rate movement is driven by speculation based on the migration to NAFEX by the CBN.
However, the local unit remained stable at the parallel market, data posted on abokiFX.com. According to the data posted, the naira closed at N495.00, the same rate it exchanged hands with the hard currency in the previous session on Thursday.

But on the same Friday, data posted on the FMDQ Security Exchange where forex is officially traded showed that the naira fell against the U.S dollar at the Investors and Exporters (I&E) window

At the NAFEX window, data posted showed that the domestic currency closed at N412.00 to the dollar, a 0.24 per cent depreciation from N411.00 it traded in the previous session on Thursday.

This became evident as foreign exchange supply plummeted by 55.50 per cent, with $156.06 million posted as against $350.65 million posted in the previous session on Thursday.

The naira witnessed an intraday low of N430.00 and a high of N400.00, according to the FMDQ data posted. The last time the currency traded at N412.00 was on May 21.

Based on this, the disparity between the black market and official market rates currently stands at N83.00. This translates to a margin of 16.80 per cent as at the close of business on Friday.

Once there is stability at the I&E window and people see there are no major moves and demand has not increased, then we will begin to see some form of convergence, Ayodeji Ebo, head of retail investment at Chapel Hill Denham, Lagos told an international medium.
On Monday, the CBN confirmed on its website that it has officially devalued the naira, with NAFEX forex window rate of N410.25 as its official exchange rate to the dollar, after it had removed N379/$ earlier in May.

Emefiele had said that the drop in crude oil earnings and the associated reduction in foreign portfolio inflows significantly affected the supply of foreign exchange into Nigeria.
In order to adjust for the decrease in supply of foreign exchange, the naira depreciated at the official window from N305/$ to N360/$ and now hovers around N410/$, Emefiele explained.
We need to enhance our local capacity to produce, we must be productive, said Barr Fred Nzeako, a development economist told Business Hallmark in a telephone interview.
This will not only create jobs, it will also reduce our foreign exchange consumption. And when foreign exchange consumption is reduced, the value of naira will shore up.

Nzeako believes it is lack of productivity that is driving scarcity of foreign exchange and this is leading to all forms of racketeering at the forex market.

The CBN had, in April 2017, established the I&E forex window as part of efforts to deepen the foreign exchange market and accommodate all forex obligations. The purpose of the window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

But the International Monetary Fund (IMF) has consistently called for removal of foreign exchange restrictions, and a full exchange rate unification in line with governments Economic Recovery and Growth Plan (ERGP), to help keep the parallel market premium low in a more sustained manner.

The Fund insisted that restrictions on access to foreign exchange for certain categories of goods, and multiple exchange rates create distortions in both private and public sectors decision making. It also believes such restrictions discourage long-term investment, encourage smuggling and provide avenues for corruption, while also constraining the economy’s ability to absorb external shocks.