Naira Depreciates Further To N1,235/$1 In Parallel Market

The Naira suffered further depreciation to a record low of N1,235 per dollar yesterday, following strong demand on the parallel market, also known as black market.

This represents a 2.06 per cent (N25) weaker value than the N1,210 recorded on Monday, when Naira had strengthened against the dollar, gaining 1.85 per cent at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

Naira appreciation came after the finance minister Wale Edun said on Monday that Nigeria was expecting as much as $10 billion in new foreign currency inflows in the next few weeks to ease acute dollar shortages in the foreign exchange market.

After trading on Monday at the NAFEM, one dollar was quoted at N793.34, which was stronger than N808.27 quoted on Friday, data from the FMDQ showed.

Willing buyers and willing sellers offered and sold at a bid rate of N900/$ high and N701/$ low. The daily FX market turnover increased marginally by 2.89 percent to $81.55 million on Monday from $79.26 million recorded on Friday at the official market.

Analysts say they expect Nigeria’s currency to stabilise in the short-term if the expected $10 billion flows through the economy.

Charlie Robertson, head of Macro Strategy, FIM Partners UK Ltd, said $10bn should help but still the interest rate differential with $ bonds will weigh against the naira. If domestic and foreign investors make similar amounts in $ as naira, most will choose foreign exchange.

“If the inflow actually comes in as indicated, it will stabilise the Naira immediately. However, we need to block the leakages from oil theft to increase FX inflow to the CBN to sustain supply. $10bn is a huge amount but the question on everyone’s mind is if this is possible in the short term, Ayodeji Ebo, managing director/CBO, Optimus by Afrinvest, said.

Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said the inflow of $10 billion into the Nigerian economy and foreign exchange market will greatly help to clear the backlog of FX obligations.

“This will help to stabilise the value of the Naira. However, as more FX is required by both government, businesses and households for various transactions, there is the need for the country to continue to generate foreign exchange earnings through export of goods and services so that it can avoid another round of excess demand of dollar over supply,” he said.

‘Forex Market Needs Clear, Enforceable Rules’

Meanwhile, the chairman of a brokerage firm, Parthian Partners Limited, owners of digital investment platform, i-invest, Dotun Sulaiman (MFR), has expressed optimism about the potential impact of the Central Bank of Nigeria’s (CBN’s) proposed policy documentation on rules of the foreign exchange market operation in Nigeria.

Sulaiman disclosed this during an interview with journalists on the sidelines of the ongoing National Economic Summit in Abuja, yesterday.

The CBN governor, Yemi Cardoso, had disclosed during a panel session at the summit that the bank would publish robust policy documentation on the rules of the foreign exchange market operation in the coming weeks.

Sulaiman said these measures could bring much-needed order and discipline to a market that had been described as “a jungle” due to its lack of clear rules and accountability.

He said, “The rules the CBN governor is coming up with is the answer to the free fall. When you have a market that is almost like a jungle – where there are no rules, anything comes and goes, what you get is what we are getting now.”

Sulaiman emphasised the importance of clear and enforceable rules for the market, citing the current lack of transparency in exchange rates as a prime example of the challenges facing Nigeria’s economy.

He stated that the problem in Nigeria is not just the lack of rules but also the failure to enforce the existing ones and the development of a more organised regulatory environment.

Speaking on investment, he stressed that investment decisions require a clear understanding of the parameters and factors influencing the market, both controllable and non-controllable.

According to him, discipline and confidence in the system are essential to inspire investment, as no one is willing to invest in a situation characterised by unpredictability.

“It is confidence that inspires investment; nobody will invest in a situation where you don’t know what will happen,” Sulaiman said.

Sulaiman also touched on the issue of Nigeria’s mounting debt and its impact on the economy. He advocated improved productivity as a means to tackle the country’s debt woes, suggesting that a productive economy would reduce the need for borrowing.