CEM REPORT, CURRENCY| The Nigerian Naira faces renewed pressure, weakening for a fourth consecutive day at the official market (NAFEM) and hitting a low of ₦1,308 per US dollar on Wednesday. This decline comes amidst thinning dollar supply, according to data from the FMDQ Securities Exchange.
The unease surrounding the Naira’s value extends beyond the official market. Despite the Central Bank of Nigeria’s (CBN) efforts to inject liquidity by selling dollars to Bureau de Change (BDC) operators earlier this week, the black market exchange rate also climbed.
“A dollar sold for ₦1,345 on the black market,” a CEM source reported. A significant increase from ₦1,270 quoted the day before.”
CBN Attempts to Quell Panic
In a move to calm anxieties and stabilize the exchange rate, the CBN announced another round of dollar liquidity intervention for BDCs. This intervention aims to meet the demands of retail forex users.
A total of 1,583 pre-qualified BDC operators received $10,000 each, bringing the total value of the disbursement to $15.83 million.
The CBN’s Trade and Exchange Department, in a letter to the President of the Association of Bureau de Change Operators of Nigeria (ABCON), explained the rationale behind this intervention.
“The sale of $10,000 to each BDC operator is aimed at meeting the demand of the retail end of the exchange market,” stated Dr. Hassan Mahmud, Director of the Trade and Exchange Department, in the letter.
He further emphasized the expected exchange rate for these transactions. “The BDCs are in turn to sell to eligible end-users at a spread of not more than 1.5 per cent above the purchase price,” Dr. Mahmud specified.
This translates to a selling price of around ₦1,036 per dollar for BDCs, compared to the ₦1,220 per dollar band they were previously offering.
If You Ask Me
Although it might appear obvious but for those who don’t quite see it, the recent weakening of the Naira raises concerns about the effectiveness of the CBN’s current strategies. While the latest dollar disbursement aims to meet retail demand and stabilize the exchange rate, cautiou is highly required.
The success of this intervention hinges on several factors, including:
Sustained Dollar Supply: The CBN’s ability to maintain a consistent flow of dollars to BDCs will be crucial.
Market Confidence: Restoring market confidence in the Naira’s stability is essential for long-term stability.
Addressing Underlying Issues: Factors contributing to dollar scarcity, such as global oil prices and domestic policies, need to be addressed.
The coming days will be crucial in determining the effectiveness of the CBN’s latest intervention. While the immediate injection of liquidity might provide temporary relief, long-term stability requires a multi-pronged approach that addresses the underlying causes of the Naira’s depreciation.
Whether these interventions will be enough to reverse the Naira’s slide and restore confidence in the currency is a question that remains unanswered.
