The naira gained on the second day of
trading at the new interbank market as it closed at 284.83 against the
United States dollar on the back of further intervention from the
Central Bank of Nigeria.
The local currency had on Monday plunged
to 288.8 to the greenback compared to a peg of 197 to 199, which the
CBN had maintained in the 16 months to June 20 before allowing the naira
to float freely.
The central bank intervened on Tuesday
to sell dollars at the interbank market after floating the naira failed
to attract trading between banks due to liquidity concerns, Reuters
quoted traders as saying.
A total of $31m, sold between N282 and
N285 per dollar, was done around 12pm, which traders said was an
intervention by the central bank. The interbank market quoted the total
traded volume at $73m.
The naira firmed to 281 after the dollar sales, recovering from a low of 287 it touched earlier on Tuesday.
On Monday, the CBN said it cleared a
total foreign exchange demand backlog of $4bn, with a dollar exchanging
for N280 at the foreign exchange market.
The Chief Executive Officer, Cowry Asset
Management Limited, Mr. Johnson Chukwu, said in a telephone interview
with our correspondent, “For you to have an appreciating currency, the
state of supply sources must be quite strong. Today, the central bank is
virtually the sole supplier in the primary segment of the market. Until
the other sources develop, then the naira will continue to be under
pressure.
“When naira liquidity reduces, the
pressure will moderate. Naira liquidity will reduce when the $4bn that
they claimed they have met is withdrawn from the system. It is about
N1.3tn and that is about the liquidity that has been pursuing forex. So,
you are going to see a moderation in demand.”
He added, “In the immediate term, you
are going to see continuous volatility and possible depreciation of the
naira; in the medium term, we may see stability; and then in the long
term, we will see appreciation.
“Clearly, it is not a sustainable
approach because the central bank does not have a limitless war chest to
continue to intervene.”
The Chief Executive Officer, Chapel Hill
Denham, a Lagos-based investment bank, Mr. Bolaji Balogun, said it
would take awhile for the market to settle, considering that the backlog
of forex demand had built up in recent months.
He said, “This is something that the
central bank should have done six months ago. By now, the backlog would
have been cleared. By delaying so long, the backlog builds up and you
have much more to clear. We must clear that backlog.
“Investors are going to watch the market
and gradually deep their toes back into the market. An investor who had
$500m to $600m here is not going to bring it back at once. They will
make sure that the market is working before they will bring in big
money.”
Describing recent developments in the
interbank market as the start of a positive direction, Balogun said the
central bank might also have to tighten money supply, which meant that
interest rate would go up.
The central bank, which has seen its
reserves fall to more than 10-year low of $26.4bn, will struggle to keep
intervening on a large scale to defend the currency, according to the
UBS Wealth Management.
“They can’t do this for months. We could
see further pressure on the naira and it may depreciate to about 300
per dollar,” Bloomberg quoted Jonas David, a Zurich-based
emerging-markets analyst at UBS Wealth Management to have said.
•CBN’s intervention not sustainable, say analysts
’Femi Asu/Punch
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