With the value of the naira down to N368 to the dollar at the Bureau de Change end of the foreign exchange market and N373 on the streets, the Central Bank of Nigeria (CBN) has said it will be pumping more dollars into the market to stabilize the naira.
Naira which had been stable a N363 at both the BDC and the parallel market had taken a bashing last week dropping by 1.4 and 2.8 per cent per cents respectively as panic buying swelled the value of the dollar.
Analysts said the depreciating value of the naira had been prompted by a depression in the price of crude oil which dropped to a year low on Thursday. The price of Brent crude which is the major revenue earner for Nigeria had dipped to around $57 per barrel on Thursday the lowest level since October 2017.
Research analyst at FXTM, Lukman Otunuga who noted that while emerging markets currencies could remain supported after dovish remarks from Federal Reserve Chairman Jerome Powell weighed heavily on the dollar, said the naira would not be among those supported.
According to him, the naira may struggle to reap the full benefits of a weakening dollar due to heavily depressed oil prices. “Although expectations of the Fed raising interest rates less than expected may reduce capital outflows, the Naira remains heavily influenced by Oil markets. With Oil prices sinking to a fresh yearly low today, this not only impacts government revenues, but economic growth and the nation’s ability to enact the 2019 budget which pegged the Oil price at $60 per barrel. If falling reserves result in the CBN being unable to defend the Naira, this will weigh heavily on the local currency.
The declining price of oil at the international market had seen the 30 days moving average of Nigeria’s external reserves drop in recent times. Data on the website of the CBN showed that the 30 days moving average of the reserves had declined to $41.53 billion as at November 22 before rising to $42.07 billion as at November 29.
To prop up the value of the naira and boost supply in the foreign exchange market the CBN had said it will be increasing its interventions to the BDC market with an additional $15,000 special sales. Currently, the CBN sell $20,000 to BDC operators on Mondays, Wednesdays and Fridays.
The special intervention which commences this Thursday brings the weekly sales to the BDC to $75,000, a move traders says will help stabilize the value of the naira. The CBN in a statement issued at the weekend said it had introduced the special intervention to meet the expected increased demand for personal and business travel allowance during the yuletide season.
A parallel market trader told Leadership that he expects the value of the naira to moderate by the end of the week on the expected inflow of dollars to the BDC end of the market. Meanwhile the CBN sustained its intervention at the retail Secondary Market Intervention Sales (SMIS) by injecting a total of $331.22million in that segment of the market, in addition to CNY51.86 million in the spot and short- tenored forwards segment.
The figures obtained from the bank revealed that the dollar-denominated interventions were for requests in the agricultural and raw materials sectors while the Yuan was for Renminbi denominated Letters of Credit.
The CBN governor, Godwin Emefiele, at the weekend had reemphasized the resolve of the apex bank to work towards a stable exchange rate. Speaking at the Bankers Dinner organised byt eh Chartered Institute of Bankers of Nigeria (CIBN) said notwithstanding these pressures, the CBN is determined to maintain its stable exchange policy stance over the next few months given the level of reserves.
He noted that the reserves are still strong enough to support the naira saying “gross stability is projected in the FX market given increased oil related inflows and contained import bill. I will like to make it categorically clear that sustaining a stable exchange rate is of overriding importance to us even as we continue to put measures in place to shore up reserves.
“Though the CBN has so far managed to maintain exchange rate stability, the current capital flow reversals from emerging markets is expected to continue to exert considerable pressure on market rates. This pressure could be amplified by the forthcoming elections, especially as the political market place heats up.