The nation’s currency, the naira yesterday fell by N16.20k at the inter-bank spot market, being the lowest depreciation since the Central Bank of Nigeria (CBN) introduced a flexible exchange rate in June 2016.
The naira closed at N310.43k against the US dollar. This represents a 5.51 percent drop, compared to N294.23k at which it closed the previous day, according data from FMDQ.
Currency dealers attributed the depreciation to scarcity of dollars, as the CBN which has been the major supplier could not intervene by selling some greenbacks at the inter-bank market since the week.
The CBN’s financial data seen by BusinessDay, show that there was Open Market Operation (OMO) repayment of N131.5 billion yesterday. There were also Primary Market Sales such as Nigeria Treasury Bills (NTBs), and FGN Bonds to the tune of N204.96 billion and Primary Market Repayment of N127.96 billion.
But the CBN yesterday insisted on maintaining exchange rate stability in the foreign exchange market. Speaking with BusinessDay by phone yesterday, Isaac Okorafor, acting director, corporate communications department of the apex bank, explained that the bank is always trying to maintain stability and that this was why it lifted its peg on the currency to allow it trade freely.
“The market moves up and down. It could come down to N280 against the dollar tomorrow”, he told BusinessDay by phone.
However, the local currency yesterday traded stable at the autonomous and parallel markets, as it closed at N365/$ and N375/$ respectively.
Banks had been quoting the dollar at between N281 and N285 after the Central Bank lifted its 16-month-old peg of N197 to the dollar last month. But the lack of liquidity at those levels has curbed activity, leaving the apex bank as the main supplier of dollars, traders say.
On the interbank money market, overnight rates have been stuck at a high of 40 percent for much of this week, traders said, as the central bank mops up naira liquidity through treasury bill issues to attract offshore investors into bonds.
Foreign exchange liquidity remains a challenge, despite CBN and FMDQ efforts to support the interbank FX market with Forwards and OTC FX Futures/Naira Settled Forwards transactions, according to analysts at Ecobank Nigeria limited.
The analysts said NGN volatility has risen, following the CBN governor’s meetings with investors in the UK and US.
The CBN governor and his team, met investors in the U.S. and U.K. last week to encourage them to buy NGN denominated stocks and bonds , after the removal of a rule capping the difference, or spread, between bids and offers in the foreign-exchange interbank market at 50 kobo on July 15.
The 1M FX Forward transaction sold via the SMIS mature on 22 July 2016, and the CBN would require US$697mn to meet its obligations. The foreign reserves which serve as a cushion, is currently US$26.3billion, and barely covers five-month import bills.
The CBN’s ability to meet its matured obligations as at when due, is not in doubt, but recent development as per frequency and volume ofCBN’s FX sales to the Foreign Exchange Primary Dealers (FXPDs) have questioned the apex bank’s capacity to support the market, as growing import and investment demand are not being settled.
HOPE MOSES-ASHIKE
