A month ago the Nigerian currency the Naira was on the ropes hitting a low of N520 per dollar on the black market and there were calls for it to hit N650 per dollar as all manner of speculators were betting against it. Today the Naira has pulled off a remarkable turnaround trading as high as N430 per dollar with expectations for more gains in coming weeks and here are 10 reasons why:
Heavy intervention by the Central Bank of Nigeria (CBN) of up to $1.2 billion since Feb 20 has increased liquidity in the official market. The CBN also began providing direct additional funding to banks to meet the FX needs of Nigerians for Personal and Business Travel, Medical needs, and School fees. Tightened paperwork for accessing dollars has had the effect of eliminating spurious demand for the dollars in the interbank market.
The CBN has put a lid on abuse of the system by banks by not letting them exceed their Net FX Trading Position limit, and debiting accounts of successful banks immediately after FX auctions. FX future’s/forwards sales by the CBN has served to curb unnecessary demand and push out some of the spot demand into the future.
High interest rates for Treasury Bills and aggressive open market operations (OMO) have tightened liquidity in the system which has been good for the Naira. The CBN has grown its dollar reserves to above $30 billion today from as low as $24 billion some 3 months ago. This has enabled it to be more bold and confident in its ability to defend the Naira.
Higher oil prices have helped too. Since Nigeria gets almost all its dollar earnings from the sale of crude oil. The increase in oil prices to $55 per barrel between December and February has been positive for dollar inflows into the country. The relative quiet in the Niger Delta has boosted Nigeria’s oil production to as high as 1.8 million barrels a day in February from a low of 1.2 million. This has increased dollar earnings for Nigeria and aided the CBN in its interventions in the market.
Buhari’s illness and absence from the country between January and March also gave some impetus to the reform minded people in the administration to push the CBN into announcing the reforms to the market that it did on Feb 20. Finally the successful $1 billion Eurobond issued by the Ministry of Finance which was 6 times oversubscribed was a confidence booster for the Naira by providing badly needed dollar inflows to the country.
However, no pain, no gain is the catch word as black market operators continue to groan under what they describe as unpredictability of the forex market. A forex black market operator at Sabo, Ibadan on Tuesday told the Street Journal that many of them might be forced out of business due to huge losses incurred through the unannounced collapse of the dollar against the naira.
Abdulahi Mohammed said he had personally lost over N5 million due to the sudden appreciation of the naira against the dollar occasioned by the CBN’s interventions. He said many of the black market operators had bought dollar at very high rates only for the commodity to fall in the market. Another operator simply identified as ”Babalawo’ at the Sabo forex market said Nigerians may be happy with the current strength of the naira, many operators have been plunged into debt. Babalawo, a native of Kano but trades in currency in Ibadan said it would be difficult if not impossible for most of the dealers to recover from the losses incurred through the new strength of the naira.
He said the huge losses were due to speculations by the traders who had bought dollars in huge quantity at very high rates before the sudden intervention of the CBN that forced down the rates. He however, noted that foreign investors might not be favourably disposed to coming to Nigeria to do business if the nation’s economic policies were not stable.
But when reminded about the huge gains of the recent past when the dollar was mesmerizing the naira at about N520 to a dollar, he simply chuckled and walked away from our correspondent.