MARKET NEWS

After experiencing a rebound for a few days where it appreciated to N950/$ at the parallel market, otherwise known as the black market, the naira seems to have surrendered to pressure in the for­eign exchange market as it depreciated massively against the US dollar both in the official and parallel markets.

The naira declined to a record low for the second time in about two weeks on Friday as the currency continued its wide swings in a bid to find a market level.

 It declined 14 percent on the of­ficial market to close at N996.75 to the dollar, the lowest it has traded on record.

It was the steepest single-day loss since October 30, when it weakened 25 percent to N993.82 per dollar before rallying 18 per­cent the next day.

At the parallel market, there was renewed pressure on the foreign exchange (FX) market intensified on Wednesday as the naira fell to 1,140 per dollar.

This represents 8.91 percent depreciation against the dollar when compared with an average of N1,046.66 exchanged on Tues­day.

The naira on Tuesday fell to an average rate of N1,046.66 per dol­lar following a shortage of dollars on the black market.

This represents 2.61 percent (N26.66/$) weaker than N1,020 quoted on Monday on the black market. The dollar was sold for N1,080 in Festac, Lagos; N1,030 at Airport, Lagos, and in Ibadan, it sold for N1,025/$.

Significantly, the naira closed the week at N1,190/$ on the black market.

An investigation by Indepen­dent Analytics revealed that some highly placed Nigerians who have benefited from FX round-tripping under the last administration are currently fighting the system.

The pushback in the forex market, according to the Central Bank of Nigeria (CBN) is by spec­ulators and currency traders.

A source, who prefers ano­nymity, said, “The Federal Gov­ernment did an excellent job with the naira given its recent appreci­ation but speculators and hoard­ers who are powerful Nigerians are pushing back and sabotaging government efforts”.

Experts believe the CBN has what it takes to clamp down on currency hoarders and specula­tors whose activities affect the appreciation of the naira against the US dollar.

Subsequent moves by the CBN to stop the depreciation of the nai­ra received a significant boost in the last two weeks.

The improvement was not unconnected to the implementa­tion of President Bola Tinubu’s promise to clear the estimated $7 billion foreign exchange backlog.

Most Nigerians are, however, pleased about the appreciation and strengthening of the naira, as many commended the Federal Government.

This was, however, short-lived as the naira began to depreciate again from Wednesday, last week, and the value of the naira against the US dollar began to decline fol­lowing alleged moves by specula­tors and hoarders to fight back.

Reacting, Dr. Bismark Re­wane, Managing Director/Chief Executive Officer of Financial Derivatives Company Limited in Lagos, said, “The naira is ex­pected to remain volatile on lin­gering forex supply concerns. The dollar dearth means speculative buying is likely to continue, with an increasing number of market participants taking long positions on the dollar while shorting the naira.

“However, the receipt of the expected $10 billion could provide some respite by year-end as the CBN and Federal Government see the true value of the naira at N650-750/$.

“More so, JP Morgan esti­mates that the official rate will close the year at N850/$”.

He added that though the issue of inadequate FX supply will con­tinue to pose challenges, “there is a possibility of improved market sentiment if sustained momen­tum in foreign exchange (FX) reforms is maintained.

“The sustained depreciation of the naira is expected to put ad­ditional pressure on the price of domestic commodities like sugar and wheat, which are imported. Imported food inflation is likely to cross the 30% benchmark in the coming months.

“The exchange rate passes through effect on commodities prices will be more pronounced in October’s inflation numbers.

“This is why FDC is projecting inflation rate to rise to 27.8 percent from 26.72 percent in the previous month, further supported by ele­vated energy prices and money supply growth”.

Mikael Bernard, a financial analyst, said the decision to pump money into the forex market by the Federal Government is only going to be for a while, adding that the major issue should be how to ensure that more forex flow into the country.

He said, “There is no doubt that there is a speculative attack and the reason we are having this problem is because there’s no liquidity; there’s no money. Nigeria is not producing; we are not exporting. Unless you fix the fundamental issue, just trying to use the policy to boost the naira or to manipulate the naira will not solve any problem. It’s just a waste of time.

“I think Nigeria needs to fol­low the path of Chile, where the central bank does not interfere in the exchange rate. They removed the restrictions. Here, peer-to-peer (P2P) also removed the same re­strictions. The CBN should re­move every restriction and focus on inflation, on interest rates, on ensuring that the naira has value locally and forget about the dollar rate and trying to manipulate ev­erything.

“Because at the end of the day, we are wasting money we can use to develop the country to defend the naira. And obvi­ously, no amount of economic manipulation would make the naira rise. We don’t just have the resources”.

In a new report, the Econo­mist Intelligence Unit (EIU) said the CBN “lacks the firepower” to clear the $6 billion forex backlog. It also claimed the apex bank also lacks the experience to conduct a foreign currency float leading to a negative outlook for the naira.

In its new country report for Nigeria, the EIU noted that there would be continued currency losses due to the large size of the parallel market and the low foreign exchange reserve of the country.

“We have revised our ex­change-rate forecast to front-load a larger devaluation in 2025, to reflect a widening gap between the official and parallel-market exchange rates. We expect an­other attempt at exchange-rate convergence that year, meaning a larger correction.

“We have adjusted our aver­age exchange-rate forecast for that year to N1,068.3:US$1, from N914.4:US$1 previously. As our forecast for continued currency losses over time has not changed, the projected rate is also now weaker for later years.

“A larger devaluation will have limited pass-through, given the size of the parallel market, but our forecast for average inflation in 2025 has been revised up by two percentage points, from 15.1 percent to 17.1 percent.”