The injection of dollars into the Nigerian foreign exchange market and the central bank’s interest rate hikes are working in favour of the naira, driving the currency to its biggest gain in months, a currency traders’ body said.
The local currency rose to N950 to a dollar in the parallel market on Monday from N1,120 it traded last Thursday. At the official market, a dollar sold for 783.67 compared to 807.27 the previous day.
The naira began to rise last week after the Central Bank of Nigeria began clearing matured forward foreign-exchange contracts with an unspecified number of banks in a bid to help stabilize the naira.
The amount of overdue forward payments was estimated at about $6.7 billion. Clearing that backlog weighed on the naira, which fell to a record low of almost 1,300 per dollar on the black market and 1,000 on the official market two weeks ago.
“The development stems from the ‘double-edged sword dollar liquidity injection and the mopping up of the naira through interest rate hikes,” Aminu Gwadabe, president of the Association of Bureau De Change Operators of Nigeria (ABCON) said Sunday.
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The government allowed the naira trade more freely in June, hoping to attract more dollar inflows and improve liquidity that had dried up after years of pegging the naira to the dollar. Dollar inflows failed to materialize, however, as foreign investors instead waited for the central bank to clear a backlog of overdue dollar liabilities estimated at $6.8 billion.
The scarcity of dollars in Nigeria has forced buyers looking for hard currency onto the streets of the country’s cities, where the naira changed hands at 1,167 per dollar on Thursday.
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“What is happening in the market and the continued naira rebound is the manifestation of the CBN double-edged sword measures of dollar liquidity injection and naira mopping through the instrumentality of interest rates hikes,” Gwadabe said.
“It is a good development as it is a greater risk to speculate, hoard and substitute naira for other currencies.”
He blamed currency speculators for the naira’s woeful performance in the last few weeks.
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