Nigeria’s currency will stabilise in the short-term if the expected $10 billion flows through the economy, analysts said on Monday.
Naira on Monday strengthened against the dollar, gaining 1.85 percent at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Naira appreciation comes after Wale Edun, the finance minister said Monday that Nigeria is expecting as much as $10 billion in new foreign currency inflows in the next few weeks to ease acute dollar shortages in the foreign exchange market.
After trading on Monday at the NAFEM, one dollar was quoted at N793.34, which was stronger than N808.27 quoted on Friday, data from the FMDQ showed.
Willing buyers and willing sellers offered and sold at a bid rate of N900/$ high and N701/$ low. The daily FX market turnover increased marginally by 2.89 percent to $81.55 million on Monday from $79.26 million recorded on Friday at the official market.
Charlie Robertson, head of Macro Strategy, FIM Partners UK Ltd, said $10bn should help but still the interest rate differential with $ bonds will weigh against the naira. If domestic and foreign investors make similar amounts in $ as naira, most will choose foreign exchange.
“If the inflow actually comes in as indicated, it will stabilize the Naira in the immediate. However, we need to block the leakages from oil theft to increase FX inflow to the CBN to sustain supply. $10bn is a huge amount but the question on everyone’s mind is if this is possible in the short term, Ayodeji Ebo, managing director/CBO, Optimus by Afrinvest, said.
Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said inflow of US$10 billion into the Nigerian economy and foreign exchange market will greatly help to clear the backlog of FX obligations.
“This will help to stabilise the value of the Naira. However, as more FX is required by both, government, businesses and households for various transactions, there is the need for the country to continue to generate foreign exchange earnings through export of goods and services so that it can avoid another round of excess demand of Dollar over supply,” he said.
Aminu Gwadabe, national president of Association of Bureaux De Change Operators of Nigeria (ABCON), said that is very good news and it will no doubt provide the needed liquidity to reverse the dwindling fortune of the local currency.
He said there is actually no empirical evidence to back up the volatility in the markets that continue to pervade and preclude a true market price mechanism.
According to him the mindless depreciation is just a combination of illegal economic behaviours like currency substitutions, hoarding and speculation. There is no justification for the whole indefensible and unacceptable frivolous demands.
“Our economy is not in recession and we are not in a war situation to be going through this word of mouth pricing strategy. It is also germane for the apex bank to leverage on the BDCs to meet the critical retail end needs of the market in their demand management.
“The BDCs have robust monitoring transactions mechanisms and client identification systems that enable them to be the most pass-through effect of the apex bank foreign exchange policy.
“Over time the BDCs in 2006, 2009, 2019 have played a very significant role in eliminating the gap between the official and the parallel markets.
“The BDCs play the role of moderating and regulating the speculative activities of the parallel markets and ensuring price discovery and accessibility,” he said. (BusinessDay)
