Naira To Drop Below N570/$ As Travelers, Businesses Resume Dollar Scramble

The naira which yesterday closed at N570/$ at the parallel market is expected to weaken further by next week as businesses resume and travelers scramble for more dollars.

Findings showed that demand for hard currencies tailed off due to the holidays and as businesses closed for the year.

Forex dealers said the local currency could come under pressure next week on the unofficial market where it trades more freely, as outbound travel and businesses resume following the holidays.

The currency was steady on the week at N570 per dollar on the parallel market while on the official market , commercial banks quoted the currency in a range of N409 to N415 against the dollar.

“I expect a bit of demand next week which could push naira down,” one trader said.

Nigeria is battling dollar shortages brought on by low oil prices, following disruptions linked to the COVID-19 pandemic.

Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane said no less than 55 to 60 per cent of official forex transactions are traded at the Investors and Exporters’ forex window.

Rewane listed some of the exchange rate determinants as balance of payments, capital inflows and trade balance. “Currency volatility persisted at the foreign exchange rate market. He said that sustained intervention at the I&E window will help ease forex pressures and lead to an appreciation of rates. This will reduce import costs and tame inflationary pressures. The report said that the month of November saw the gross external reserves reverse its accretionary trend and maintain steady depletion throughout the month.

Likewise, the Central Bank of Nigeria (CBN) stoppage of dollar sales to Bureaux De Change (BDCs) had pushed manufacturers and foreign exchange end-users to the official market where backlog of unmet foreign exchange demand continued to soar.

The BDCs are now sourcing dollars from autonomous sources, usually at higher prices.

Market dealers and analysts said the policy shift could increase hoarding of scarce dollars in the hands of very few forex dealers.

Rewane, said channeling dollars solely to commercial banks will not solve the problem of market volatility.

For him, the banks also have challenges with keeping with set foreign exchange trading guidelines.

“The question that arises is what is the optimal solution? Administrative controls or market pricing? The interim solution of substituting BDCs with banks is hardly going to achieve much. You are virtually handing over the yam barns to goats to secure. In the end, there will be no yams nor goats,” he said.

According to Rewane, one of the options is to simultaneously allow banks to retail dollars as they have done in the past and make BDCs engage in retailing same but at a buy rate different from today’s subsidized rate, that is, buy dollars from the CBN at the parallel market rate less a N10 premium.