Speculators in Nigeria’s foreign exchange (FX) market may have finally been boxed into a corner as banks stopped collecting cash deposits in dollars, following a move by lenders to discourage speculation on the local currency which has been hit by the fall in oil price.
At the parallel market last Friday, the naira appreciated further, to close at N223 to a dollar, as forex traders confirmed the local currency would strengthen further against the greenback if banks insist on their position.
Before now, while the naira/dollar exchange rate has been range-bound between N197 and N199 at the interbank FX market, the premium at the parallel market had continued to rise.
“I learnt that banks want to encourage the use of electronic transfer in dollar denominated transactions, instead of cash. The policy is not yet clear to us here in the parallel market, but if it continues, it will definitely strengthen naira,” a dealer told BusinessDay.
Ladi Balogun, CEO, FCMB Limited, had said in a conference call with investors and analysts Friday, that “Banks no longer accept dollar cash due to large speculation on the currency”, However, commercial lenders will continue to receive dollar transfers from other banks.
Balogun’s comments were confirmed by another Nigerian lender, which asked not to be identified, according to Reuters. “We are constrained due to the current influx of foreign exchange cash deposits we have been receiving in recent times, and the lack of available FX cash outlets to stop receiving FX cash deposits,” it said by email to the online newswire.
Ahead of the latest meeting of the Monetary Policy Committee (MPC), Victor Ogiemwonyi, Chief Executive Officer, Partnership Investment Company plc had advised the CBN to let the parallel market first get to its highest and “let speculators sweat a little. Let us wait for the U.S. Fed rate hike and let’s see how long those Hedge Fund speculators will be able to hold out. They are betting on the naira being devalued.”
“We note that the implementation of the ‘order-driven’ FX market has been accompanied by further restrictions on the foreign exchange market which has reduced liquidity and inevitably created a wide premium between the interbank and parallel market rates with implications for output and prices,” said research analysts at CardinalStone in their post-MPC note.