Uncertainty on Thursday trailed the foreign exchange market after the Central Bank of Nigeria (CBN) closed its official forex window. Consequently, the value of the nation’s currency, the naira, fell by N2.51k or 1.3 percent against the US dollar at the inter-bank foreign exchange market.
After trading on Thursday, naira closed at N199.10k/$ compared to N186.59k/$ the previous day at the inter-bank market, data from Financial Markets Dealers Quotations (FMDQ) revealed. At the parallel market, naira lost N4.00k/$ or 1.9 percent as it closed at N218/$ as against N214/$ the previous day. Naira on Tuesday appreciated by N1.86k or 0.9 percent against the US dollar at the inter-bank foreign exchange market after the CBN closed the Retail/Wholesale Dutch Auction System (RDAS) and (WDAS).
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The WSTC Financial Services Limited view the decision of the apex bank to scrap the RDAS foreign exchange window as a technical way of re-pricing the value of the naira (a euphemism for devaluation), and this is expected to check the avoidable haemorrhaging of the nation’s stock of external reserves. The external reserves had declined by 5.24 per- cent as at February 16, 2015 to US$33.66 billion from US$34.47 billion held as at December 31, 2014, having shed a staggering 4.72 percent within the last eleven trading days.
“We reckon that the re-pricing of the domestic currency is a necessary policy move for the restoration of stability in the financial markets. Also, at the macro level, we believe that it presents an effective way of addressing the double jeopardy of low government earnings (on the fiscal side) and high interest rate (on the monetary side). Thus, we reckon that the re-pricing will engender stability of both fiscal and monetary policies. It simply implies higher government earnings from crude oil in naira terms and will also give the apex bank the needed room for reducing the monetary policy rate”, analysts at WSTC said.
The currency of Africa’s biggest economy – and the continent’s top oil producer – has lost more than 20 percent in the past three months as oil prices collapsed and concern grew among investors about political stability after the six-week postponement of the February 14 elections, Reuters reports.
