As the value of the naira hit a year high of N1,000 to the dollar on the parallel market, analysts have said positive sentiments following the various policies of the Central Bank of Nigeria (CBN) will continue to push up the value of the naira.
By the close of trading on Monday, the value of the naira which was at N1, 130 to the dollar on the streets firmed to N1,000 although the local currency still closed at N1,136 to the dollar at the Nigeria Autonomous Foreign Exchange Market (NAFEM).
Although traders at the parallel market related the strengthening of the value of the naira to the dollar sales by the CBN, the Head of Financial Institutions at Agusto & CO, Ayokunle Olubunmi said “CBN selling dollars to the BDCs is just symbolic.”
The CBN sells $10,000 to each BDC that meets its criteria at the lower band quoted on the previous trading at the Nigeria Autonomous Foreign Exchange Market (NAFEM). Last Friday the value of the naira was between N1,265 and N1,100 to the dollar.
Whilst noting that BDCs sell more than the $10,000 weekly sales by the CBN, Olubunmi “it is symbolic and acts as price discovery. What we have seen over the last couple of months is that sentiment drives exchange rates to a large extent.
“When there was a backlog and the CBN couldn’t meet up, a lot of people were panicking and those that did not even need dollars were just buying. But now it is the other way round. It is also a combination of a lot of things. The various policies of the CBN have actually supported the exchange rate.
“In the next couple of weeks rates can actually fall further because of the latest policy which disallows banks from using foreign currency instruments and assets as collateral. We will see people liquidate their dollar assets and pump more foreign exchange into the market
“The question now is how sustainable is this. What has been driving the rate is the foreign portfolio investors who are short term investors, and the core things that give us forex have not been significant enough, although the fiscal side has been saying they want to diversify but we have not seen any result.
At the NAFEM, the naira had appreciated by 5.7 per cent from N1,205.06 to close Monday at N1,136.04 to the dollar. Trades were consummated within the N1,227 and N1,000 to the dollar band. At the end of the day, a turnover of $251.60 million was recorded at the official market.
The trading of the naira at N1,000 is in line with the projection of US Bank Goldman Sachs which at the weekend projected that the naira will be trading at N1,000. Goldman Sachs Group Inc, had projected that the naira will be among the best performing currencies in the world.
Having predicted in February that the naira would strengthen to N1,200 per dollar this year, Goldman economists say they see it potentially advancing beyond that level after a raft of measures by the central bank.
Those included 600 basis points of cumulative interest-rate increases at policy meetings in February and March, as well as other steps to ease the local scarcity of dollars that fanned volatility and forced companies to the parallel market.
Goldman’s Andrew Matheny told Bloomberg Newswire in an interview that “this probably can run further; we would see an extension of the move to 1,000 and maybe even sub-1,000. Six weeks have gone by and they’re continuing to hold the line, so that’s encouraging,” he said.
The group maintains its 12-month forecast for the naira at 1,200 per dollar, owing to uncertainty around the ability of the authorities to maintain the reform tempo, though it now sees risks to that upbeat projection.
