Increased demand for dollars at the interbank market has pushed the naira spot rate to N315.06 against the United States’ dollar on Thursday, compared to N311.06 it exchanged for on Wednesday.
However, despite losing 1.29 per cent in value due to increased demand for the greenback, the naira strengthened against other currencies as the it exchanged for N407.991 to the Pound Sterling on Thursday, compared to N414.036 on Wednesday and N345.03 as against N347 to the Euro, which it exchanged for on Wednesday.
The local currency’s parallel (black) market value which had slipped to N390/$1 on Wednesday, headed further south to N400 to the dollar even as it remained stable at N500 to one pound and N422 to one Euro at the same market.
Currency traders fear that scarcity of the greenback might continue into the coming week if nothing is done to boost dollar liquidity in the foreign exchange (forex) market.
Financial experts said the level of foreign exchange reserves show that dollar inflow has reduced drastically and that this could be one of the reasons the Central Bank of Nigeria no longer intervene in the market “because one can only give what one has.”
The foreign exchange reserves stood at $26.42 billion on May 28; it was down by 9.2 per cent year-on-year. During the month of July, the reserves hovered between $26.3 and $26.4 billion, just as the foreign exchange reserves oscillated between $26.3 and $26.4 billion in June.
The CBN had last month lifted its 16-month-old currency controls and auctioned about $4 billion on the spot and futures market to clear a backlog of dollar demand, to help boost interbank market trading.
Meanwhile, the pound has gone into free fall after the Bank of England (BoE) cut interest rates to 0.25 per cent, down from 0.5 per cent.
It is the first time the Bank has lowered interest rates since 2009.
Sterling fell 1.27 per cent after the BoE’s announcement at midday and is $1.3156 against the dollar as of 13:44 GMT.
The rate cut had been widely expected, which probably explains why the currency fall is not much worse. But the BoE does expect the weaker pound to increase inflation over the rest of the year and possibly beyond.
2016 has already been a rollercoaster year for the currency following the UK’s June 23 vote to leave the EU, which saw the pound fall to thirty-year lows against the dollar.
It had since stabilised since Theresa May became Prime Minister and even rallied after the BoE surprised everyone by holding interest rates on June 14. But it is still just over 10% lower than before the referendum vote took place.