The naira is expected to remain around 498 per United States dollar despite the release of $660m by the Central Bank of Nigeria, experts and foreign exchange traders have said.
The CBN on Wednesday released $660m to quench greenback shortages in the economy. The regulators sold dollars in a special auction aimed at clearing the backlog of dollar obligations of manufacturers as well as those in the aviation, agriculture and petroleum sectors.
The naira was quoted at 498 to the dollar on the parallel market on Friday, the same as last week’s, while banks quoted the currency at 314.50/dollar on the official interbank window.
The unit is seen closing around 305 to the dollar, the same level it has traded since August.
“The pressure on the market has reduced slightly because of the recent dollar sales by the central bank to clear part of the backlog of demand and the regular sales to Bureaux de Change operators by Travelex,” one trader told Reuters.
Economic and financial analysts are slightly divided over the outlook for the naira this year.
For instance, an economic expert and Chief Executive Officer of Cocosheen Nigeria Limited, Mr. Henry Boyo, said the naira might crash to almost 1,000/dollar at the parallel market this year if the CBN failed to review its monetary policy framework.
According to him, the policy framework is skewed against the local unit and it will be difficult for the naira to remain at the current rate.
A Nigeria-based investment bank and research advisory firm, Afrinvest West Africa Limited, predicted that the official exchange rate of the naira would tumble by about 31 per cent to 400/dollar before the end of this year.
In its 2017 economic outlook, the firm said the CBN might be forced by possible developments in the currency market to devalue the naira from the current 305/dollar to around 400/dollar.
“If you think about the monetary policy environment, we think that the CBN will be forced by the market to make a change. Currently, the naira is pegged at 305/dollar; we see it moving towards 400/dollar by the end of the year,” the Group Managing Director, Afrinvest, Mr. Ike Chioke, said at a press conference announcing the firm’s economic outlook.
Chioke stressed the need for reforms in the currency market, petroleum downstream sector, power and other key sectors of the economy in order to put the ailing economy on the path of growth.
“If the CBN did take a plunge to make it really market-driven, we can see that even the 400/dollar rate may appreciate later on, bringing to something below 400/dollar,” the expert said.
The Chief Executive Officer of Financial Derivatives Limited, Mr. Bismarck Rewane, said a further decline in the value of the naira was likely this year but noted that this might not be too significant.
He believes there is a need for the central bank to overhaul the forex market to enable forces of demand to determine the exchange rate.
He said, “What you are seeing today is symptoms of ‘mis-allotment’ of the currency because of the structure of the market and the process which the foreign exchange market is operating. You will see that the rate of depreciation of the currency (naira) has actually slowed; so, I don’t think it can depreciate to that level (N700/dollar). If there is a catastrophe, yes, it is possible. But is that likely? It is very unlikely to happen.
“But more than anything else, the current state of the forex market in Nigeria must be reformed and completely overhauled. If you don’t do that, no matter what happens, you are not going to get the results you want.”