Naira Continued Its Downward Slide As Demand Pressure Persists

Two days after the new exchange rate band was introduced by the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC), the naira continued its downward slide against the dollar at the Wholesale Dutch Auction System (WDAS) Wednesday.

Data obtained from the CBN’s website showed that the currency slipped by N1 to close at N156.21 to a dollar, compared with the N155.21 to a dollar it attained on Monday, when the new exchange rate band was adopted. Currency dealers attributed the fate suffered by the naira to high demand for the greenback from currency dealers.

The data showed that whereas the regulator only offered a total of $250 million, the total dollar demand recorded was $412 million. The total demand was, however, slightly lower than the $419 million recorded on Monday. The MPC had deliberately lowered the naira's target band against the dollar to around N150-N160 to a dollar, compared with the N145-N155 to a dollar it was previously, owing to the severe pressure the naira had suffered as a result of perennial high dollar demand.

However, the MPC did not adjust the Monetary Policy Rate (MPR) as it left it unchanged at 12 per cent. The cash reserve requirement of banks was also left at eight per cent. On the other hand, the local currency also dipped at the interbank market as it closed at N159.75 to a dollar as against Tuesday's position of N158.90.

Although the Managing Director and Chief Executive Officer, Slamad Bureau De Change, Mr. Amaeze Olisaemeka argued that the demand for forex might continue because of the activities of importers bringing goods into the country in preparation for the yuletide and end-of-year celebration.

A former Director of the Trade and Exchange Department, Central Bank of Nigeria (CBN), Dr Omolara Akanji, argued that the mono-product structure of the Nigerian economy whereby it relies heavily on commodity export does not augur well for the market. Commenting on the impact of monetary policies in an economy, she explained: “Changes in the policy rate influences overall level of expenditure in the economy. The policy rate affects all other rates in the economy, the price of financial assets and the exchange rate-these affect consumer and business demand in a variety of ways.

“Monetary policy has far reaching impact on financing conditions in the economy - not just the costs, but also the availability of credit, banks’ willingness to assume specific risks, among others. It also influences expectations about the future direction of economic activity and inflation, thus affecting the prices of goods, asset prices, exchange rates as well as consumption and investment.”