As the Central Bank of Nigeria rejigs the forex market as a prelude to rate unification and further devaluation of the naira, currency traders stayed away from the market and refused to submit quotes at the official forex market on Monday.
The operators have been threading cautiously since the weakening of the naira on Friday. At the Friday auction at the retail forex market, the CBN lowered the value to N380 to a dollar from N375 to a dollar. The cation was to avoid incurring losses.
“No quotes for the naira were available on Nigeria’s official market on yesterday after the Central Bank allowed the currency to weaken five per cent at a retail auction in a move to unify the currency’s multiple exchange rates,” dealers said.
Currency traders refused to quote prices for the naira amid confusion about the impact of the apex bank’s adjustment.
The CBN, as the biggest forex supplier at the weekend, asked commercial banks to bid at N380 per dollar, five per cent above its official rate of N360. The naira was exchanging at N461 to dollar at the parallel market, which is N101 above the official rate.
The apex bank has continuously intervened through its periodic supply of dollars in the forex market, offering an average of $100 million weekly via the Secondary Market Intervention Sales (SMIS) Wholesale Window to small businesses.
Still, the CBN has come under pressure to further devalue the naira as dollar demand by manufacturers and importers rise.
In an emailed note to foreign investors, Trading Desk Manager at AZA, global investment and research firm, MuregaMungai, said rising dollar demand is heaping pressure on the CBN for another round of devaluations, last seen in March, in a bid to bolster exports.
He said: “The CBN hopes to boost financial stability amid new projections from the International Monetary Fund (IMF) that Africa’s oil producing countries led by Nigeria could lose $34 billion in revenue due to the crash in oil earlier this year.
While crude recovered to above $40 a barrel this week, the naira slid from N460 to N462 per dollar. We foresee sustained negative pressure.”
The CBN had in May devalued the naira to N380 to a dollar. The devaluation came after over three years of push from financial market managers, the World Bank and International Monetary Fund (IMF) for the local currency to be devalued.
They insisted that with the drop in forex reserves and decline in Nigeria’s dollar earnings following tumbling crude oil prices, Nigeria had no option but to devalue its currency.
Aside devaluing the naira, the CBN also adopted a unified exchange rate, and pushed the official rate of the naira to N376 to dollar for International Money Transfer Operators rate to banks; N377 to dollar for banks’ dollar sale to CBN.