The Nigerian naira is on a free fall as things get harder by the day. The naira has crashed again against the dollar.
As a result of the continuous depreciation of naira, economists on Wednesday advised the Federal Government and the Central Bank of Nigeria to review their policies and introduce measures that would turn around the dwindling fortunes of the nation’s economy.
The naira exchanged for N375 to a dollar on Wednesday from 368 on Tuesday at the parallel market. Foreign exchange dealers said the lingering scarcity of forex at the interbank market was shifting dollar demand to the black market.
The local currency had lingered between 346 and 348 at the parallel market before tumbling to over 360 this week, following the total floating of the naira by the CBN on Friday.
The local currency, however, eased slightly against the dollar at the official interbank market and closed at 294.23 on Wednesday, up from 294.87 on Tuesday.
Dealers said the local currency was stuck at 294.23 after just one transaction was carried out, with the supply of dollars drying up and no intervention by the CBN, Reuters reported.
Highlighting the state of the interbank market, an economist at Exotix, Mr. Alan Cameron, said, “Recent FX reforms have been enough to re-open the investment case for Nigeria, but there is still some uncertainty about the functioning of the market.
“The absence of volatility at N283/$ was interpreted as a sign that administrative controls were still in place; it remains to be seen if those will be fully removed.”
According to some analysts, foreign investors have welcomed the removal of currency controls by the CBN but many are still steering clear of the Nigerian economy until it shows signs of a concrete recovery.
“Most investors would like to see a more liquid FX market before resuming purchases of local assets,” the Head of Africa Strategy at Standard Chartered Bank, Samir Gadio, told Reuters.
He, however, added, “Given the significant discount of naira-settled futures, a number of offshore financial institutions and hedge funds could be tempted to get involved in the foreseeable future.”
The Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, said the naira was falling at the parallel market because demand had shifted there due to lack of liquidity at the interbank market.
However, the National President, Association of Bureau De Change Operators, Aminu Gwadabe, said the naira was not sustainable at 375 to the dollar at the parallel market.
He described the demand as artificial, saying, “I think the parallel market has been taken over by some forces. Where is this demand coming from? I think this is not sustainable.”