• Friday, July 19, 2024
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BusinessDay

Naira gains as election dollars circulate

Naira hits new low of 915/$

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.

The daily forex market turnover increased by 54.16 percent to $131.33 million on Thursday from $85.19 million on Wednesday.

The local currency lost 3.8 percent of its value against the dollar in one month, falling from N737/$ at the beginning of the year to close at N755/$ in February 2023.

This was fuelled by heightened uncertainty as naira cash crunch bit hard, Bismarck Rewane, managing director/chief executive officer of Financial Derivatives Company Limited, said in a report.

According to Rewane, Nigeria’s sources of forex remain weak due to sub-optimal oil production induced by oil theft, capital flow reversal owing to global monetary tightening and exchange rate premium at the parallel market.

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Official naira is expected to fall to N500 per dollar as Nigeria’s external reserves, which stood at $37.21 billion as of January 17, 2023, is projected to decline to $34.9 billion at the end of 2023, according to the Nigerian Economic Summit Group.

The decline in the official forex reserves will be driven by the CBN’s intervention in the forex market and shortage in forex inflow at the end of 2023.

In 2022, the country’s external reserves declined by 8.2 percent to $37.1 billion from $40.5 billion at the start of the year.

At the money market segment on Thursday, the overnight rate remained unchanged at 19.00 percent, while the open repo rate increased by 0.04 percent to close at 18.67 percent compared to 18.63 percent on the previous day, a report by FSDH research said.

The Nigeria Treasury bill secondary market closed on a flat note on Thursday with the average yield across the curve closing flat at 8.08 percent on Thursday, as average yields across short-term, medium-term, and long-term maturities remained unchanged at 4.03 percent, 6.93 percent, and 10.29 percent, respectively.