The value of Nigeria’s currency improved further on Wednesday by N10 as the cost of dollar dropped to N430 (selling) compared to N440 traded on Tuesday on the black market.
Foreign exchange users who want to buy from black market operators can buy dollar at N425 in some areas of Lagos State.
The improvement in the exchange rate is due to the Central Bank of Nigeria’s planned resumption of dollar sales to Bureau De Change (BDC) operators next week.
BusinessDay had earlier reported that the Central Bank plans to resume dollar sales to BDCs on Monday. The apex bank said it would allocate $10,000 twice a week to BDCs, which implies $20,000 weekly to 5,000 BDCs, amounting to a total of $100 million in a week.
With the new amount of FX allocation, the BDCs are losing about 73.3 percent or $55,000 when compared to $75,000 they were getting from the CBN before the outbreak of Covid-19 pandemic.
Uche Uwaleke, a professor of capital market at Nasarawa State University, Keffi, reckons that the reduction is justified by the fact that the rate of international travel and the real, as opposed to artificial, demand for dollars to meet invisibles will take quite some time to return to pre-Covid-19 level as many countries are yet to fully reopen their economies.
The foreign exchange has been under intense pressure since March 2020 following sharp drop in prices of oil – Nigeria’s major foreign exchange earner – due to outbreak of Covid-19.
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Nigeria’s currency has lost N108 to the dollar since March 2020 to trade at N476 as at August 2020 compared to N368/$ in March.
“It is common knowledge that the FX pressure is partly due to the speculative demand for dollars. The reduction is also a product of the drop in crude oil price and external reserves compared to pre-Covid-19 era. I am sure the CBN will increase the volume of weekly sales to BDCs as oil prices recover and the level of reserves improve,” Uwaleke said.
According to the CBN’s circular announcing resumption of dollar sales to BDCs, purchase of foreign exchange by BDCs would be on Mondays and Wednesdays in the first instance. The BDCs are to ensure that their accounts with the banks are duly funded with the equivalent naira proceeds on Fridays and Tuesdays, accordingly.
Ahead of the dollar sales resumption, the BDCs are ready to fund their account on Friday. The BDCs in the South East have agreed to start funding their account on Thursday in anticipation of dollar sales on Monday by the apex bank.
The CBN chose a gradual foreign exchange supply of $10,000 twice a week to BDCs to edge out speculation in the market.
Akintunde Olusegun, financial market analyst at Polaris Bank Limited, said the reduction in the size or quantum of sales might not be unconnected with the apex bank’s plan to manage the current FX pressure in the economy.
While the resumption of sales is expected to result in immediate appreciation of the naira regardless of the quantum of sale to BDC, analysts say it will not be enough to meet the FX needs of end users given the amount of backlog that exists. Moreover, some manufacturers and SMEs have resorted to the parallel market in meeting their FX needs.
“The reduction will have little effect in curbing the country’s FX pressure as demand for FX persists across all segments of our economy,” Olusegun said.
Analysts at Zedcrest Capital Limited expect the parallel market rates to continue to converge towards the official markets as speculative supply continues to hit the streets.
“However, we anticipate these lower rates to be short-lived as the market continues to show doubts of the size of the CBN’s war-chest to meet up the long-outstanding demand for the greenback,” the analysts said.
