Naira under intense pressure on increasing political spendings, yuletide demand, FPI exit

INCREASING political spendings, forex demand pressure by yuletide shoppers and exiting foreign investors exerted pressure on the Naira at the interbank market, forcing the local currency to close lower at N306.90 against the dollar, down from N306.85 at which it had opened the week at the interbank market.

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According to financial analysts, increasing yuletide demand pressure extending into the new year and unfolding political uncertainty scaring away Foreign Portfolio Investors (FPI) are major factors compounding naira woes against other currencies in the near term against concerns over dwindling oil price.

The Head of Treasury at Ecobank Nigeria, Mr Olakunle Ezun, said naira performance is driven by liquidity and government monetary policies.

“As we are getting into election proper, FPIs are leaving the nation’s economy putting more pressure on Naira. The dwindling oil price is another concern. In terms of liquidity, the supply side is weak, while demand has risen because of the exit of FPI in the market.

“The only place where investors can access the market is the parallel market and Investors & Exporters Foreign Exchange Window. Whatever you see on the interbank market is not the true position of naira. Nobody is exchanging dollar at N306.9- it is official.

“If supply is weak, and you have continued growing demand, the dollar will definitely appreciate against the naira. This is what keeps playing out in recent times at the market,” said Ezun. He urged the apex bank to continue its weekly intervention to Bureau De Exchanges (BDCs) and commercial banks.

Ezun added that “CBN is mopping up excess liquidity in the naira market and trying to increase dollar supply in the foreign exchange market. The supply of dollar to BDC operators and commercial banks is checking the pressure. By so doing, stability in the foreign exchange market has been sustained.”

However, the local currency further gained against the Dollar at the BDC by 0.82 per cent to N361/dollar amid sustained series of special interventions by CBN.

Also, the Naira appreciated at the parallel (‘black’) market segments by 1.09per cent to close N364/dollar.

The local currency gained at I&E Foreign exchange by 0.03 per cent to close at N365.23 amid increased dollar supply.

However, the Naira depreciated at banks rate by 0.02 per cent to close at N359.24/dollar despite the weekly injections of $210 million by CBN into the foreign exchange market via the Secondary Market Intervention Sales (SMIS) of which: $100 million was allocated to Wholesale SMIS, $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for invisibles.

Meanwhile, the Naira/dollar exchange rate fell (i.e. Naira appreciated) for most of the foreign exchange forward contracts – two month, three months and 6 month fell by 0.01 per cent, 0.06 per cent and 0.03 per cent respectively to close at 372.80/dollar, 376.30/dollar and 387.07/dollar respectively; however, spot and one year FX rate rose by 0.02 per cent and 0.18 per cent to close at N306.90/dollar and 415.27/dollar respectively.

In its bid to sustain exchange rate stability, the CBN started supplying BDC operators $60,000 a week in response to increase in the demand for personal/business travel allowance during the yuletide season.

A statement by the CBN had noted that, “With the approach of the yuletide season and the resultant increase in the demand for personal/business travel allowance, the CBN has in addition to the existing market days (Monday, Wednesday and Friday) introduced a special intervention every Thursday for $15,000 per BDC (bureau de change).”