Demand Pressure Weighs Down Naira!!!

The Naira slipped against the United States Dollar at the Central Bank of Nigeria’s (CBN’s) Wholesale Dutch Auction System (WDAS) Monday due to renewed demand for the greenback. The local currency also fell at the interbank segment of the foreign exchange (forex) market Monday  as currency dealers resorted to the market to meet cover the shortfall at the WDAS.

In fact, total demand for the greenback at the bi-weekly auction appreciated significantly by 60 per cent Monday to $592 million. The total recorded represented an increase by $223 million, compared with the $369 million that was observed at last Wednesday’s auction. The apex bank was unable to meet all the demand as it offered only a total of $400 million. The regulator had offered a total of $250 million last Wednesday.

The Naira dipped by 25 kobo to N151 to a dollar at the WDAS Monday, as against the N150.75 to a dollar it stood last Wednesday. Similarly, the local currency also depreciated by 30 kobo at the interbank market as it closed at N153.90/$1 Monday, from N153.60/$1 on Friday. Dealers attributed the increased demand at the bi-weekly auction Monday to demand for the greenback by importers of petroleum and other commodities in the country.

The amount put by dealers was the highest since this year. The only time demand rose close to its present value was on March 23 and 28 this year, when the market recorded total demand of $584 million and $586 million respectively. Analysts at Financial Derivatives Company Limited (FDC), in their latest, “Bi-monthly Economic and Business Update,” for the month of August, also revealed that the Naira weakened by 4 per cent at the parallel market.

“The spread between the exchange rates in both the official and parallel markets also hit a 2-year peak of N15 (10.3% on the official rate). The exchange rate for the month averaged to N150.6/$1 and N164.4/ $1 at the official and parallel markets respectively. CBN's directive limiting the activities of the BD's served to squeeze supply at the parallel market and this led to aweakening of the Naira by three per cent in less than two weeks,” it added.

The report also showed that the Nigeria’s external reserves dropped by 4.4 per cent to close July at $32.5 billion, adding that increased oil receipts helped boost Nigeria's oil revenues during the month. It said: “The view has always been that Nigeria’s external reserves could see significant accretion if the CBN reduces its Dollar supply at the weekly WDAS.”

Commenting on the outlook for the third quarter of the year, it predicted that consumer prices could increase in coming months as the minimum wage hike is eventually implemented. It also forecast that imported inflation could go as high as 13 per cent per annum in the quarter, if the Naira continues to cede ground to the Dollar in the forex market.