Naira’s come back truly on as hoarders dump the dollar

Nigeria’s beleaguered national currency, Naira is staging a comeback as dealers who have been hoarding the US dollar are dumping the greenback while buyers wait on the sideline hoping the rates will improve further.

It emerged that the Central Bank of Nigeria has started clearing the estimated FX demand backlog of about $2bn by selling $25m daily directly to the banks.

The local unit traded 430 naira per dollar on Wednesday from a peak of 477 naira last week, according to abokifx.com, which collates rates from street traders in Lagos, the nation’s commercial hub. In the official spot market, the unit weakened 0.4% to 387.15 naira per dollar as of 8.53am on Wednesday.

According to Aminu Gwadabe, president of the Association of Bureau de Change Operators of Nigeria, dealers who hoarded foreign currency are releasing it “to the market because they don’t know where the price will settle on Monday. They are dumping, people are not willing to buy,” he told Bloomberg by telephone.

Nigerian naira strengthened to its strongest level in informal trading since at least April as supplies of the U.S. currency surged ahead of an auction set for next week by the central bank.

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The parallel rates went 5% weaker than the official rate of 380 naira when the central bank suspended dollar sales to bureau de change operators in March, widening as much as 20% at a point, as Africa’s most populous country went into lockdown to contain the spread of coronavirus.

The Central Bank of Nigeria said it will resume sale of foreign currency to traders on Sept. 7 as the lockdown eases and international flights resume, increasing the demand for the greenback by businesses and leisure travelers. The central bank plans to sell at 384 naira to a dollar to dealers, who will then sell at 386 naira to end users.

Nigeria is struggling to clear a backlog of foreign-exchange demand by foreign investors taking their profit and locals seeking imports.

The shortage was exacerbated by the outbreak of Covid-19 and the slump in the price of crude, which accounts for more than 90% of the nation’s foreign exchange earnings and more than half of government revenue.

“As it is now, all the foreign portfolio investors are relaxed because of the intervention by the apex bank. They (CBN) have promised us that it would be weekly until everything is cleared,” a source said.

CBN Director, Corporate Communications, Mr. Isaac Okoroafor, who confirmed the clearance, said: “We have always said that once we understand the depth of the situation fully, we would start intervening. So, we have started clearing the FX backlog.”

It was gathered that in order to stimulate FX liquidity, CBN has also been intervening at the Investors and Exporters’ (I&E) window, where on Tuesday it sold $5 million and also sold the same amount of FX on the window yesterday.