Naira notes
| credits: Google
| credits: Google
The naira, which saw its biggest monthly drop in February, on Monday strengthened by 1.15 per cent against the United States’ dollar at the interbank market, where all demands for foreign exchange are now channeled after the closure of the Retail Dutch Auction System window.
The naira closed at 200.39 to the dollar, compared with 202.72 at the interbank market on Friday, according to data from Financial Markets Dealers Quotations, an OTC securities exchange and self-regulatory organisation.
The currency closed at 226 against the dollar at the Bureau de Change segment of the market on Monday from 227.5 on Friday, the President of the Association of Bureau de Change of Nigeria, Mr. Aminu Gwadabe told our correspondent.
The naira, had on February 12 hit an all-time low of 206.60 against the dollar at the interbank market, triggered by escalating tension over the postponement of the general elections.
The development, which also led to further depletion of the nation’s foreign exchange reserves, forced the Central Bank of Nigeria to close the RDAS, its bi-weekly forex auctions on February 18.
Before taking the step, the central bank had sold the US dollar outside of the RDAS and interbank market, asking banks to submit the amount of the dollar demand they required based on a selling price of N198, with bids assessed on the banks’ actual levels of client demand.
Some analysts had then described the CBN action of selling the dollar N30 above its N168 (+/-5 per cent) rate as a de facto devaluation.
While announcing the closure of the RDAS, the bank said it became imperative in order to avert the emergence of multiple exchange rate regime and preserve the country’s foreign exchange reserves.
The naira dropped by 8.3 per cent against the dollar in February, its biggest monthly decline in more than five years, worse than a 6.9 per cent fall in November after the CBN devalued the currency by eight per cent.
The Head, Investment Research, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, in a telephone interview with our correspondent, said, “We expect the naira to remain relatively stable for now because the closure of the RDAS market has reduced speculative demand and round-tripping by participants in the market.
“The exchange rate will be market-driven, but we will not see the kind of fluctuations we saw when the RDAS was still on. The CBN has promised to supply on demand basis as long as it is genuine demand. Now, the spread between the interbank and the Bureau carry out unethical activities on the naira.”
Ebo said what the CBN had done was to look at what the fair value by which investors were pricing the dollar at the interbank, which, according to him, reflected the average fair value which investors felt they could trade the dollar.
“What the CBN has done is to devalue the naira, you can call it tacit or technical devaluation, to reflect that particular price that it has traded over a period,” he said.
“So, it is different from what they did in November that they just increased from 155 to 168, not necessarily reflecting the amount which it was trading at the interbank.”
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