The Naira is gaining strength at the parallel market. It appreciated at the weekend from N525/$ to N505/$. The strength followed news of the expected $6.35 billion liquidity flow into Nigeria.
The local currency fell sharply at the parallel market after the Central Bank of Nigeria (CBN) announced the stoppage of dollar sales to Bureau de Change (BDC) operators.
Analysts said naira’s rebound followed the expected $3.35 billion inflows from the International Monetary Fund (IMF’s) $650 billion Special Drawing Rights (SDRs) and Eurobond issue of $3 billion by the Debt Management Office (DMO) from the International Capital Market (ICM).
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Nigeria was billed to receive $3.35 billion out of the $650 billion on August 3 – when the SDRs would have been to IMF member countries in proportion to their existing quotas in the Fund.
Financial Derivatives Company Limited Managing Director Bismarck Rewane predicted that the naira will gravitate towards fair value – N470/$ to N490/$ in the coming months provided dollar supply increases and crawling peg is adopted.
Rewane said: “Naira will stabilise as SDR facility and Eurobond is drawn down while exchange rate stability expected in the third quarter of 2021 improved dollar cash flow.”
According to Rewane, the naira premium on the parallel market rate will reduce as forex becomes more accessible to the public through the forex desks created in commercial banks.
He described the rise in oil prices – hovering around $75 per barrel (pb) in July and the raise in Nigeria’s production quota to 1.8 million barrels per day (mbpd) by the Organisation of Petroleum Exporting Country (OPEC) as bright spots in the picture.
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Forex Trading Desk Manager, AZA, Murega Mungai, said that market panic after the CBN guidelines dollar sales to BDCs has reversed, with most speculators cutting their negative positions, reversing losses on the currency.
Mugai said: “The restrictions are a relief to some who accuse the BDCs of hoarding dollars and creating artificial shortages, with the CBN effectively directing banks to make more foreign currency available. The Naira maintained N411.5 to the dollar in official rates during the week. With panic buying off, we project the naira to further strengthen in the coming days.”