The naira reportedly fell to a new low of 414 against the United States dollar on Sunday August 28, in spite of the continued scarcity of foreign exchange in the country, with economic experts predicting further pressure in the forex market this week.
The development erupted five days after the Central Bank of Nigeria had banned nine commercial banks from the forex market for failing to remit the Nigerian National Petroleum Corporation’s $2.334bn into the Treasury Single Account in line with President Muhammadu Buhari’s directive last September.
The naira was sold for 414/dollar across some black market segments in Lagos and Abuja on Sunday. It hit an all-time low of 412 against the greenback at the parallel market on Friday, after closing at 409/dollar on Thursday.
Punch reported that by Wednesday, a day after the CBN banned the nine banks from the forex market, the local currency depreciated to 402/dollar, down from the 397 it closed against the greenback on Tuesday.
Forex dealers reportedly said the demand pressure on the dollar, mounted by summer travellers and parents paying schools fees of their children studying overseas, was exacerbated by the CBN’s forex ban on the nine lenders.
The currency dealers said the naira started falling after the CBN banned the lenders from forex transactions.
It first touched 400/dollar at the black market this month since the CBN floated the currency on the official interbank market in June.
At the interbank market, the naira closed at 314.95 on Friday, with traders saying interbank rates would ease this week when part of July’s budget allocation must have entered the banking system.
But experts said the naira would plunge further against the US dollar this week at the parallel market as forex supply remained a major challenge.
Forex traders said even though the CBN had continued to sell dollars daily on the interbank market, its efforts were considered weak and inadequate, Reuters reported.
The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said, “There is nothing in the policy environment that will arrest the decline unless the central bank has increased capacity to supply the market, which unfortunately it doesn’t have. So, we should expect the naira to remain under pressure in the coming week.”
He said for the naira to stabilise, there must be a funding that the Federal Government or the CBN could access, such as a credit support from either the World Bank or a trading partner like China.
Chukwu said, “The decline of the naira against the dollar is beyond the recent suspension of some banks from the forex market. We have witnessed suspension of banks in the past, and it did not lead to any spike in exchange rate. The major challenge we have now is supply shortage. If that improves, naira will stabilise.”
He said the naira might hit a low of 420 to the dollar this week.
A currency analyst at Ecobank, Mr. Kunle Ezun, said the supply issue, ban on 41 items from the official forex market and activities of speculators would continue to push the value of the dollar up against the naira.
He said, “Sincerely, there is no major thing that one can expect in the parallel market. The only thing that could bring calm to the market is the supply of the US dollar. What we have in the market is basically demand and supply interplay.”
According to him, the volatility in the parallel market will continue as the importers of the banned 41 items have resorted to the market.
“A lot of people in the official market will want to actually maximise the gains on their dollar holding by channelling it through the parallel market,” Ezun said.