The measures introduced by the Central Bank of Nigeria (CBN) to rescue the naira have triggered volatility among currency dealers.
A survey yesterday by The Nation showed that inconsistent pricing and cautious optimism characterised the parallel market in Lagos and Abuja where traders grappled with the implications of the apex bank policies.
The triggers are the reduction of dollar sales to Bureau De Change operators from $20,000 by half and the hike in interest rate by the apex bank to 24.75 per cent from 22.75 per cent at the 294th Monetary Policy Committee (MPC) meeting on Tuesday.
According to a CBN circular released on Monday, BDC operators will as from today, be able to buy $10,000 worth of forex at N1, 251 per dollar as against the $20,000 allocation and N1, 301 per dollar rate offered last month.
It was confusion for potential forex buyers yesterday at Wuse Zone 4, a major foreign exchange hub in Abuja, as currency traders offered the dollar at varying rates. Some quoted N1, 250 per dollar and others offered to sell as high as N1, 330 per dollar. The inconsistency created uncertainty for those seeking to exchange the naira for the dollar.
But despite the price disparity, there was a general consensus among traders that holders of foreign currencies were cautiously selling their holdings.
The measured approach suggests a wait-and-see attitude, where market participants gauge the long-term impact of the CBN’s actions.
Traders at the parallel market remain unconvinced that the dollar price will experience a significant drop in the days ahead.
The Nation learnt that the apex bank’s decision to sell $10,000 to BDC operators at N1, 251 per dollar with a 1.5 per cent spread is viewed with skepticism.
Many believe that the price point may not be enough to entice a substantial downward movement in the parallel market.
The MPC decision to raise the interest rate benchmark has instilled a sense of panic in the parallel market with traders anticipating an influx of portfolio investors seeking to capitalize on the higher interest rates offered on naira-denominated assets.
The potential inflow of foreign exchange could theoretically lead to a decrease in the dollar price.
Many forex dealers in Lagos turned down requests by ambitious sellers – mainly speculators – insisting on old dollar rates despite appreciation of the naira against dollar.
At the Central Business District (CBD), in Marina, Lagos, the naira exchanged at N1, 300 per dollar (a N34 appreciation from N1, 334 it exchanged on Tuesday).
Many speculators, who had recorded heavy losses, were forced to sell at the new rate after initial hesitation.
Hassan Abdul, a BDC trader in Central Lagos, said the naira was trading at N1,300 per dollar around 12 noon, and sustained the rally till the close of business yesterday.
He said: “Many currency dealers, who bought on Monday when the rate was higher, were initially not ready to absorb high level of losses based on today’s rates. But they sensed that delay meant more losses, and decided to offload at the new rate. The improved liquidity in the market makes it even more risky for those holding back dollars,” he said.
Another forex dealer, Abiodun Mohammed, blamed the losses at the parallel market on the CBN policies.
He He said: “The new policies, especially the discounts given to bureau de change operators drastically reduced the rates of the dollar against naira. Many of us that bought when the dollar was high are recording major losses. But, we understand the risks involved in the business”.
Mohammed said he will slow down new purchases to avoid further losses.
“The risk in this business is too high at the moment. I have to slow down until the rates settle at a more market-friendly rate,” he said.
Naira will continue to stabilize, says Shettima
Vice President Kashim Shettima has assured that the naira will continue to stabilise in the coming weeks and months.
Shettima gave the assurance at the inauguration of the National Design and Innovation Competition organised by the Interior Designers Association of Nigeria (IDAN) at the Presidential Villa in Abuja yesterday.
[TheNation]