Naira to fall further on higher dollar demand

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Naira to fall further on higher dollar demand

Naira to fall further on higher dollar demand
July 18
06:13 2016

The naira is expected to depreciate further this week as rising dollar demand continues to put the local currency under pressure at the Central Bank of Nigeria’s interbank forex window and parallel market.

The local currency eased by four per cent against the dollar on Friday to hit a record low after the CBN sold the greenback at a weaker rate to boost interbank market liquidity, forex traders said.

The naira hit a record low of 295.25 on thin trade at the interbank market, a month after the CBN lifted its currency peg, Reuters reported.

A total volume of $12m traded on the interbank on Friday at an average rate of N290, with traders attributing the sale to a CBN intervention.

The interbank market had remained broadly stable at 282/283.

At the parallel market, the naira closed at 365 against the dollar on Friday. The local currency had closed at 352 per dollar the previous Friday.

The naira experienced volatility last week, as supply gap at the interbank forex market weighed on the parallel market.

Forex dealers said inadequate liquidity in the interbank market was making the naira to depreciate very fast.

According to them, the naira will continue to depreciate at the parallel market as holidaymakers seek dollars to finance their summer vacations abroad.

Currency analysts and experts said there was a need for the Central Bank of Nigeria to address liquidity problem at the interbank market to stabilise the local currency.

“It all comes back to liquidity; that is what drives the market, the Chief Executive Officer, Nigeria, Renaissance Capital, a United Kingdom-based investment bank, Mr. Temi Popoola, had said.

The CBN had a few weeks ago removed its 16-month naira peg and adopted flexible exchange rate policy, after forex restrictions led to factory closures and business losses.

Meanwhile, the Federal Government’s plan to raise N120bn ($425m) in bond maturing 2021, 2026 and 2036 last Wednesday was stalled by system glitch at the CBN.

However, an official of the Debt Management Office said the auction was still ongoing.

The DMO had in a public notice said it would raise N40bn at par in 2021 bond, while also raising N40bn apiece in the 2026 and 2036 maturing bonds at the auction.

Meanwhile, the Kenyan shilling is expected to gradually weaken due to increased corporate dollar demand this week, heightening the prospects of the central bank intervening by pumping in dollars.

The Ugandan shilling is expected to be vulnerable over this week, undermined by a potential rebound in dollar demand from companies after they’re done meeting their mid-month tax obligations.

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