CBN adjusts naira down to N379/$ as currency falls further on parallel market
By Oludare Mayowa
“The CBN had frittered away the opportunity to stabilise the market when the foreign exchange reserves were substantial to support the market,” a former director of the bank told one of our reporters
Nigeria’s central bank on Friday adjusted its exchange rate to N379 to the dollar on its website weeks after it devalued the currency from N360 to the dollar on the official window, but the official rate was still far below the rate at the Investors and Exporters’ (I&E) window and the parallel market.
The Central Bank of Nigeria (CBN) has devalued the currency twice this year by 18.99 percent as it moved toward eliminating multiple exchange rates in the country.
However, the naira remained weaker at the other forex windows with the local currency traded at N475 to the dollar on the parallel market on Friday, weaker than the N474 per dollar it was traded previously.
Also, the local currency traded at N386 to the dollar on the I&E window on Friday, 1.8 percent weaker than what is obtained on the CBN official window.
The I&E window is the major platform where the bulk of domestic foreign exchange is traded daily as it gives the flexibility of allowing the market mechanism to determine the rate of exchange.
Both the International Monetary Fund (IMF) and the World Bank continue to pressure Nigeria to merge its multiple exchange rate windows to allow the forces of demand and supply to determine rates of exchange.
Analysts blamed the CBN for acting too late and slowly in freeing the market to operate efficiently by imposing control mechanisms in the determination of the exchange rate, providing speculators the opportunity to take advantage of the weakness to arbitrage on the currency.
“The CBN had frittered away the opportunity to stabilise the market when the foreign exchange reserves were substantial to support the market,” a former director of the bank told one of our reporters.
The country’s forex reserves fell 1.32 percent month-on-month by August 6, to $35.67 billion from $36.15 billion a month earlier as the CBN continued to ratio dollar to endusers.
Traders said the backlog of forex demand by foreign portfolio investors wanting to repatriate funds to their home countries was estimated at $7 billion as the CBN kept them waiting due to dollar shortages.
Analysts said the forex reserves have not benefited much from the inflow of dollars from the IMF $3.4 billion credit facility in May and repatriation of $312 million part of Sani Abacha loots as the nation’s forex buffer declined year-to-date by 7.42 percent.
The forex exchange buffer had started the year at $38.53 billion but took a dive downward in the wake of the outbreak of the coronavirus pandemic which disrupted the global supply chain and caused demand for crude oil, Nigeria’s mainstay to fall sharply.