Panic buyers push naira to N502/$1 on parallel market

The naira on Friday exchanged at N502 to dollar on the parallel market as panic buyers piled pressure on the local currency.

The naira lost N3/$1 when compared with N499 to dollar it closed on Thursday.

Managing Director/CEO Financial Derivatives Company Limited, Bismarck Rewane, said the naira was weakening because of panic buying by forex users, speculative trading and front loading of future demand.

“Our economic analysis based on the cobweb theorem of prices (exchange rate) moving towards an equilibrium says that prices will rise initially when there is a demand gap before falling in the short run.

“Therefore, we expect the forex market to correct itself in July with the naira appreciating towards N470-N490/$,” he said in emailed report to investors.

The naira continues to come under pressure after devaluation by the Central Bank of Nigeria (CBN) that pegged the official exchange rate at N410.25 to dollar.

Naira’s depreciation to new low has also been linked to dollar scarcity and forex speculators hoarding the available greenback to maximise profit.

Many forex dealers were shocked at the pace at which the naira was losing ground against the dollar despite rise in crude oil prices.

Trading Desk Manager, AZA, a global forex trading platform, Murega Mungai, told investors that the market has continued to digest the impact of the CBN adopting the NAFEX as its official exchange rate.

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He said that foreign reserves also declined slightly to $34.24 billion, repressing a 0.04 per cent decrease compared to the previous week figure.

Mungai said the recent rise in global crude oil prices has not fed through into increased revenue from oil exports while projecting sustained pressure on the naira in the coming days.

An economist and Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, had attributed the naira’s continued decline to heightened forex supply shortage, demand pressure and rationing.

He said naira rates convergence would require adoption of a full floating exchange rate system determined by the forces of demand and supply.

President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said forex speculators are behind the naira crisis.

He said directors of Bureaux De Change (BDCs) have met and resolved that all BDCs should cooperate to bring down the forex rates in the market.

Likewise, the International Monetary Fund (IMF) said exchange rate rigidities have constrained the economy’s ability to absorb external shocks.

The IMF insisted that restrictions on access to foreign exchange for certain categories of goods and multiple exchange rates create distortions in both private and public sectors decision making. They discourage long-term investment, encourage smuggling and provide avenues for corruption.

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Moving forward, the Fund suggested removal of foreign exchange restrictions and a full exchange rate unification, in line with the authorities’ Economic Recovery and Growth Plan (ERGP), will help keep the parallel market premium low in a more sustained manner.

It therefore called for unified exchange rate for the naira to promote growth and attractive foreign capital.

According to the IMF, foreign exchange backlog and shortages are intensifying balance of payment (BoP) pressures, insisting that exchange rate unification was imperative to reduce BoP risks.

It said that fiscal deficit will stay elevated in the medium term, while additional domestic revenue mobilisation is required to reduce fiscal risks.

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