Naira gains as election dollars circulate

The naira has appreciated against the dollar at the parallel market as some of the dollars said to have been spent by politicians during the elections have come into the market.

The naira strengthened to 735 per dollar on Friday, compared to 742/$1 on Tuesday, at the parallel market, also known as the black market.

“There is low demand in the market and people are bringing out dollars for sale,” a Lagos-based black market operator told our correspondent.

Johnson Chukwu, managing director/CEO of Cowry Assets Management Limited, said some of the dollars coming into the market may be what people got during the elections. “Because the naira was not available, some politicians spent in dollars.”

He said: “Those dollars were available to people who do not have a compelling need for foreign currency holding or transaction; so they are bringing it back to the market. Their need is basically naira or local currency. So what they are doing is basically selling the dollars in the market, and that amount of dollars coming to the market is beyond average commercial need; so you will see some level of appreciation until it is exhausted.

“The reality is that our foreign reserves are declining. It then means that we are not talking about accretion of reserves and therefore supply from official sources. The issue is that it is not coming from an official source; it is coming from alternative supply, from those who had access to dollars but had no commercial transaction need.”

Nigeria’s external reserves declined by 4.75 percent to $35.43 billion as of April 12, 2023 from $37.20 billion on January 12, data from the Central Bank of Nigeria (CBN) show.

For Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, it is possible that there are positive expectations that after the end of the current administration, the naira may begin to perform better. “So in order not to lose money, it is better to quickly sell now.”

“Because if you have a new administration and new forex policy that is better, it could bring down the exchange rate. If anybody is holding dollars at a very high rate, it is better to sell now. If a new administration comes and implements exchange rate convergence, the rate may appreciate to N700 or N650 per dollar. I think it is driven by expectations,” he said.

At the Investors and Exporters forex window, the dollar was quoted at the rate of N462.83/$1 as against N463.67/$1, data from the FMDQ indicated.

Most currency dealers who participated at the foreign exchange market auction on Thursday maintained bids between N460.00 (low) and N466.00 (high) per dollar.