Business
Naira drift towards parallel market level as naira scarcity worsens
The naira is drifting towards the parallel market level as the Central Bank of Nigeria (CBN) is yet to clear outstanding foreign currency amounts owed in forward deals.
The local currency fell to an all-time low of N1,099.05/$ at the official market amid high market volatility in the country`s anaemic FX market on Friday, losing a third of its value as its dipped Thursday’s closing rate of N843.07 to the dollar as shown on the FMDQ Securities Exchange.
The Nigerian currency, however, maintained some form of stability at the black market as it exchanged within the bandwidth of N1200 at the weekend.
The markets would need to see a string of reports of a similar nature before concerns could be fully voiced, as the Fed is unlikely to be overly concerned by the strength of the labour market as it is being reported yesterday.
Meanwhile, the Director of the Communications Department of the International Monetary Fund (IMF), Julie Kozack, has advised the CBN under its new leadership is withdrawing excess liquidity from the system, which has contributed to high inflation in the country.
Recall that in his keynote address at the 58th Annual Dinner of the Chartered Institute of Bankers of Nigeria (CIBN), the CBN Governor, Yemi Cardoso, stated his desire for monetary policies to lead to lower interest rates to drive up borrowing and investment in the real sector.
However, this appears to be a medium-term play as he also confirmed the apex bank will continue to squeeze liquidity as a monetary policy strategy to curb inflation.
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“While absolute inflation is still rising, the declining rate of growth indicates progress. The CBN is confident that with continued tightening measures for the next two quarters, we will be able to effectively manage inflation.” Cardoso
The apex bank also set up a new liquidity management committee within the Bank to address the issue of currency in circulation and naira scarcity.
Using recent data from the CBN, the currency in circulation (CIC) reached a new year high of N2.99 trillion by October 31, 2023.
This was an increase of 8.33 per cent or N230 billion from N2.76 trillion documented in the previous month, and an increase of 115.11 per cent or N1.6 trillion from N1.39 trillion recorded in January 2023.
However, there have been reports recently of cash scarcity in Abuja, Lagos and some other parts of the country.
This recent scarcity has led to banks putting a limit on cash withdrawals and queues at banks.
In an earlier statement, the CBN said the seeming cash scarcity in some locations was due largely to panic withdrawals by customers from the ATMs and assured Nigerians of “sufficient stock of currency notes for economic activities in the country.”
Also, the removal of excess liquidity is likely part of the CBN’s current effort to no longer intervene in the Nigerian economy through quasi-fiscal activities.