The nation’s currency, naira on Tuesday depreciated against the dollar across Foreign Exchange (FX) as supply drops at the Investors and Exporters (I&E) forex window, Nigeria’s official window.
Dollar supply through the daily foreign exchange market turnover declined by 62.47 percent to $50.40 million on Tuesday from $134.30 million recorded on Monday, according to the data obtained from the FMDQ.
Consequently, after trading on Tuesday, the dollar was quoted at N430.67, which was higher than N430.00 quoted on Monday, resulting in a 0.16 percent drop in the value of Naira at the I&E forex window.
Most currency dealers who participated at the FX auction on Tuesday maintained bids between N417.00 (low) and N432.00 (high) per dollar.
At the parallel market popularly called the black market, the local currency closed at N680 per dollar, losing 0.44 percent compared to N677 per dollar closed on Monday.
“The USD is the principal currency the World uses for international trade. Therefore, every country wants to hold it to be able to engage in international trade. Countries also benchmark the value of their currencies to the USD,” said Bode Agusto, CEO, Agusto & Co.
He said in his article titled, ‘Nigeria – Exchange Rate Management’, that the current policy of pegging the NGN/USD exchange rate at 420/1 has the benefit of dampening imported inflation but it has several disadvantages.
“It reduces the Naira amount of oil revenue that goes into the Federation Account; it also means that importers are undercharged duty on their imports. Exporters are forced to sell their USD at the official exchange rate thus subsidizing importers. Most importantly, this policy makes imports (whose prices go up by 2 per annum USD inflation) cheaper than locally produced goods (whose prices go up by 12% p.a. NGN inflation),” he said.
“It is important for Nigerians to know that it is an empty promise when any politician or policy maker promises stable exchange rates without explaining how he/she would bridge the gap in long-term inflation,” he said.
At the money market on Tuesday, the Overnight (O/N) rate increased by 0.50 percent to close at 15.00 percent as against the last close of 14.50 percent on Monday, and the Open Repo (OPR) rate also increased by 0.50 percent to close at 14.50 percent compared to 14.00 percent on the previous day.
As system liquidity has improved with Open Market Operation (OMO) repayment of N95.79 billion, the money market rates are likely to remain at current levels, barring any mop-up activity by the CBN, said analysts at the FSDH Research.