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Thursday, May 19, 2022

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Nigeria naira reverses loss against dollar, strengthens 0.95% at parallel market

By Oludare Mayowa

The Nigerian naira on Thursday reversed its two consecutive loss against the dollar on the parallel market, gaining 0.95 percent to close at N520 to a dollar.

The local currency had weakened against the greenback shortly after the Central Bank of Nigeria (CBN) announced that it was suspending dollar sales to Bureau de Change Operators over sundary allegations of malpractices.

By Wednesday, the naira had lost about 4.16 percent against the dollar on the parallel market, shedding N21 to the dollar to close at N525 a dollar.

The naira had traded at N504 per naira prior to the announcement of the forex sales suspension by the CBN Governor Godwin Emefiele after the Monetary Policy Committee (MPC) meeting in Abuja.

However, after the initial reaction to the sudden decision of the CBN to starve the BDCs of dollar, the market firmed as traders and endusers digest the effect of the regulatory bank’s policy switch.

According to a trader, there was some form or resistance to the new naira level by endusers, causing the greenback to depreciate against the naira.

READ ALSO: Economists want CBN to reappraise forex policy to eliminate arbitrage

Analysts at the United Capital had expressed concerns on the decision of the Central Bank of Nigeria (CBN) to stop dollar sales to the Bureau de Change operators.

“…while we think the policy decision is not necessarily bad, we are concerned about the ability of the CBN to sustain stability in the official windows as depleted reserves and pressured inflows remain significant concerns.

“Thus, as we expect the CBN to remain incapacitated in meeting the economy’s huge FX demand, we think this policy portends additional FX woes for market participants, as we anticipate a kneejerk reaction, which would lead to a steep depreciation of the Naira in the parallel market,” United Capital wrote in a note to clients on Wednesday.

A renowed economist, Bismack Rewane, said the decision to suspend dollar sales to the Bureau de change operators has “disrupted one of the juiciest gravy trains in the Nigerian economic racket.”

Rewane has estimated the Real Effective Exchange Rate (REER) of the naira at anywhere between N470 and N490 to the dollar if the CBN adopted the right forex policy.

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