The naira has continued its rapid decline on the parallel market as
it crashed to N445 to the dollar yesterday, lower than the N440 to the
dollar it closed on Friday as pressure and activities of speculators
continued to hurt the nation’s currency.
But on the interbank FX market, the spot rate of the naira
depreciated marginally to N308 to the dollar, as against the N307.79 to
the dollar it closed last Friday.
The President, Association of Bureau De Change Operators of Nigeria
(ABCON), Mr. Aminu Gwadabe, argued that the current rate of the naira
on the parallel market was not a true reflection of the value of the
currency. He also attributed the development to the activities of
speculators.
According to him, the situation in the parallel market was being
driven by speculators taking advantage of the poor implementation of the
Central Bank of Nigeria (CBN) policy requiring banks to sell dollars to
bureau de change (BDC) operators.
Some currency traders also said the demand from parents buying
dollars to pay school fees abroad was exerting pressure on the FX
market.
To analysts at CSL Stockbrokers Limited, the effects of low oil
prices and production disruptions are having significant impact on
dollar receipts by the country.
“Looking more closely at how the two are working in tandem will
provide greater insight into dollar inflows into the country on a daily
basis and what this means for dollar liquidity in the market. By
multiplying daily production data by average crude oil prices, we derive
a basic idea on the amount of hard currency flowing into the economy on
a daily basis from the oil sector.
“For example, in August, OPEC reports that average daily
production was 1.4 million barrels while the Brent crude prices averaged
$47/bbl during the month. We can therefore roughly calculate that the
value of Nigerian production was $67.7m per day in August on average.
“It would be too simplistic to use this as the amount of oil
dollars flowing into the economy (because actual prices are based on
pre-agreed contracts rather than spot prices and not all revenues will
flow back into Nigeria) but we can get an idea of the trajectory of oil
dollar flows and their levels relative to history.
“Many observers are questioning why foreign investors have not
returned to the market in droves. One likely explanation is that the low
value of oil production means that liquidity on the interbank market
remains low and foreign investors remain fearful that liquidity will not
be available when they decide to exit the market,” Lagos-based CSL Stockbrokers Limited added in a note.
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