THE naira is facing one of its toughest times since 2017, the last time it was devalued. The naira was yesterday exchanging at N414 to dollar in the parallel market during the morning hours but recovered later in the evening to N370 to dollar.
However, the local currency remained firm at the official market, closing at N306.95 to dollar and closed at N366.75 to a dollar on the Investors and Exporters’ (I&E) Forex window.
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, who confirmed the naira rates, said currency speculators and investors converting their naira asset to dollars are to blame.
According to Gwadade, many Nigerians and foreign investors, sensing the possible decline in the value of the naira, are moving their naira assets to dollars, to avoid erosion of value.
He said speculators had in their rush to accumulate dollars, pushed the local currency to new low at N414 to dollar before it made a surprise recovery at N370 to dollar at the parallel market.
He confirmed that the naira decline at the parallel market was linked to two major immediate factors: speculators buying dollars with hope of selling at higher margins and people coverting their naira to dollar assets.
The CBN, however, said the fundamentals in the market do not support devaluation of the naira.
“We wish to note with displeasure, the rumours and speculative activities of unscrupulous players in the foreign exchange market, borne out of the impression that the CBN is on the verge of devaluing the Naira, and triggering panic in the forex market. These rumours are false, unwarranted and calculated to serve their dubious and selfish ends,” the apex bank said in a stamens.
“The apex bank said it has begun a robust and coordinated investigation in collaboration with the Nigerian Financial Intelligence Unit (NFIU) and related agencies to uncover the unscrupulous persons and forex dealers who are creating this panic, and the full weight of our rules and regulations will be meted out to them, including, but not limited to, being charged for economic sabotage”
The CBN, said it had successfully maintained a relative stability in all segments of the foreign exchange market, which has enabled investors, households and other economic agents to plan and to conduct their genuine foreign exchange transactions with relative ease;
The drop in crude oil prices to $32.85 per barrel, the Coronavirus epidemic ravaging global economies, local and foreign investors dumping fixed-income assets and decline in the foreign exchange reserves are some remote reasons that brought the local currency under pressure.
Traders said more investors are worried about the value of the naira after oil prices plunged, pushing them to sell down their position on the debt and equity markets.
According to them, selling pressure on local debt had persisted because of worries by fund managers on the implications of the fall in oil prices on naira value.
The external foreign exchange reserves have declined to $36.18 billion by March 9, from $37.45 billion they were on February 10, this year.
Analysts surveyed by Bloomberg said the CBN will likely opt for a devaluation of between 10 per cent and 15 per cent.
Gwadabe said the measures taken by the CBN, including domiciliary account controls, are making it difficult for the asset movers, who are also finding a way out.
“Speculators have lost money today. Some people bought dollars at N414 in the morning hours planning to sell at higher rates. Later this evening, after CBN interventions and moves by ABCON, the rates were brought down to N370 to dollar this evening. The two things playing out against the Naira is speculation and people converting their Naira to dollars,” he told The Nation.
Gwadabe said the action of the CBN, security agencies and the collaboration with ABCON have started impacting positively on the market.
Continued, he said the foresight of the CBN in implementing the domiciliary account rule has helped the put the naira relatively stable.
“I can confirm to you that people moving assets from naira to dollar. The CBN had seen the development and came with the which places limit on the amount that can be moved and mode of withdrawal for deposited cash.,” he added.
Gwadabe said the border closure and tight security at Nigeria’s land borders are also helping to ensure that cash movement is restated.
Analysts said the local currency will continue to come under pressure, but the CBN is committed to keep it steady in line with its mandate of maintain exchange rate stability. The CBN spent nearly $16.56 billion to defend the naira in the last one year, The Nation has learnt.
Analysis of the regulator’s half year report showed that the apex bank defended the currency with $8.28 billion through its direct intervention within the first six months of 2019.
Financial analysis estimated that the same level of intervention, or even higher amount applied in accompanying six months ended December 2019.
The amount was given to different segments of the inter-bank foreign exchange (forex) market, the report said, indicating that the forex sales were meant to manage the demand pressure and ensure exchange rate stability, which are within the core mandates of the apex bank.
Despite the current pressure on the naira, CBN Governor, Godwin Emefiele has vowed to keep the naira steady for now, insisting that the slide in foreign reserves is not a cause for concern.