Naira Falls Due To Huge US Dollar Demand

The Naira dipped against the United States Dollar at both the Central Bank of Nigeria’s (CBN) bi-weekly auction and  the interbank market Wednesday following the inability of the regulator to meet huge demand for the greenback.

Data from the Financial Market Dealers Association (FMDA) showed that the apex bank demand for the greenback increased significantly by $154 million to $417.18 million, compared with the $263 million recorded last week. The situation at the Wholesale Dutch Auction System (WDAS) was even worsened by the fact that the regulator reduced its supply by $80 million as it supplied $100 million to the market, compared with the $180 million it sold last Wednesday.

Consequently, the local currency was hurt by the pressure of the demand as it tumbled by N2.10 against the dollar to N152.82 to a dollar Wednesday, as against the N150.72 to a dollar it stood last Wednesday. The WDAS did not open on Monday due to the national public holiday to commemorate the Eid-el-Kabir celebration for Muslims.
 

Dealers attributed the surge in demand for the greenback to the holiday. However, another segment of the market argued that the  market was positioned for any possible change in the CBN’s forex policy. The apex bank had indicated that it would review the exchange rate band.

Governor of the Central Bank of Nigeria (CBN), Malam Sanusi Lamido Sanusi, said last Monday that the apex bank would review the exchange rate band of naira to the dollar from +/-3 per cent of N150/$1, to N155/N156. Similarly, Reuters also said  the naira closed at N158.30 to a dollar at the interbank market, down from Friday's close of N157.50 to a dollar.

“A separate intervention by the bank after the auction helped lift the naira up 157.51 to the greenback during trading, but was not enough to offset the supply gap. The bank sold an undisclosed amount of dollars to some lenders during that intervention. Our expectation is that the naira would continue to lose value at this level of demand, but we think that the CBN could intervene if the (dollar) rates get so high," Reuters quoted a trader to have said.