Connect with us

Business

Demand for “Inflow dollars” drive exchange rate high

Published

on

Spread The News

 

The COVID-19 pandemic and the crash in oil prices have all but extinguished supply of dollars from the IFEX market, thereby the demand for “Inflow dollars” has driven exchange rate to as high as $N420/$1 compared to “Cash dollars”

According to information from traders, pent up demand for inflow dollars is estimated at anywhere from $800 million to $1.2 billion. Some of the demand is driven by companies looking to pay for their supplies, move revenues to their global offices, repatriate dividend to shareholders or hedge against future cost.

In an investor email note, the CBN has not sold forex since March 20, 2020 leaving export proceeds as the only source of forex. Unfortunately, supply here is thin and hardly available.

Even when available, it is often quoted at off market prices and as high as N420/$1. In the IFEX window where forex is traded officially, traders reportedly quoted “between N387.50 and N390.00/$ for the USD/NGN pair” on Wednesday, despite the dollar scarcity.

“The IEFX market opened and closed at N387.60 and N386.63 with the highest transaction rate recorded at N401.57/$. Total volume traded for the day was $30.42mn,” as contained in the note to investors.

On exchange rate for “inflow dollars”: Several market reports monitored indicate that “Inflow dollars” trade at prices between N410 and N450 in the parallel market where they are traded over the counter.

It is no longer news that the Nigerian economy could contract by as much as 8% in 2020, no thanks to the increasing cases of coronavirus cases and the fall in oil prices. The economy is being caught in cross-hairs.

If the scarcity continues, the Nigerian real sector may come to a halt, creating more problems for the ailing economy. Also, more corporate organisations would suffer major setbacks in importation of their inventories.

The development is causing problems for businesses across sectors, all of which are struggling to get the dollars they need for imports.

The adverse effect is that the scarcity would cause the prices of commodities to skyrocket, putting pressure on local currencies. This dollar squeeze is frustrating investors, increasing costs, and delaying projects. It may hamper future investment in the country.

According to the Managing Partner, GBC Professional Services, Chartered Accountant, Gbenga Badejo, said a lot of people hoard dollars not because they want to use them at the moment, but for speculative reasons.

According to him, two days after the CBN adjusted the exchange rate, several people hoarded the currency only to sell at N400 from N365. That is a lot of money.

He said, “CBN has the responsibility to control the market and avoid a situation where people put unnecessary pressure on the naira. People hoarding the currency can’t do anything with what they buy, if money is with them it does not make any sense.”

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published.

Trending