The pressure on the local currency intensified on Thursday as one dollar ($1) traded for N410 at the black market.
Foreign exchange users are buying up the dollar to hedge following fears of devaluation of the naira as the price of oil has slumped below $34 per barrel.
BusinessDay checks show that dollar was quoted at N410/$ at Apapa, Lagos, while in Festac Town area of the state, it closed at N400/$.
At the Investors and Exporters (I&E) forex window, dollar was quoted at the rate of N374.00k/$. This is about 1.54 percent depreciation compared to N368.33k/$ traded on the previous day, according to data from FMDQ.
The daily foreign exchange turnover at the I&E window stood at $106.04 million on Thursday. Dollar remained stable at the official window at N306.95kobo.
Razia Khan, managing director, chief economist, Africa and Middle East Global Research, Standard Chartered Bank, said the CBN’s approach to date, allowing for a very gradual move higher in USD-NGN rate in the I&E window, is the right approach to take, given the fall in the oil price.
Near-term, she said a certain amount of rushed USD-buying on the parallel market is to be expected. The CBN should not necessarily react to this – with growth still sub-trend in Nigeria, demand will likely remain subdued.
“The focus may well be how to attract other sources of non-oil related inflows into Nigeria,” Khan said in an emailed response to BusinessDay.
Nigeria’s Gross Domestic Product (GDP) grew by 2.55 percent (year-on-year) in real terms in the fourth quarter of 2019, compared to the fourth quarter of 2018 which recorded a growth rate of 2.38 percent.
In the long term, the naira depreciates against the US dollar in line with the difference in inflation between the two currencies. Trying to stop the naira from depreciating has proven a forlorn activity, according to Coronation Merchant Bank Limited.
The bank had believed that the CBN would keep the exchange rate at close to N362.50/$ for most, if not all, of 2020. But the effect, the bank said, would add pressure on the naira as its fair slips against the US dollar.
At the inter-bank market, the overnight rate declined by 9.83 percent to close at 4.00 percent on Thursday as against 13.83 percent on the previous day. Also, the Open Buy Back (OBB) rate decline by 9.55 percent to close at 3.29 percent from 12.84 percent on the previous day.
A report by FSDH Merchant Bank Limited revealed that the money market rates declined significantly by an average 969 basis points (BSP) on Thursday as inflows from Open Market Operation (OMO) bills maturities worth N223.70 billion and the Nigerian Treasury bill (NT-bills) maturities worth N86.30 billion positively impacted the system liquidity.
“We expect the CBN to float an OMO auction to mop up excess liquidity,” analysts at FSDH Research said.
HOPE MOSES-ASHIKE
