Economic and currency analysts expect the naira to remain under pressure at the parallel market this week even as the Monetary Policy Committee of the Central Bank of Nigeria meets on Thursday and Friday to take key decisions on the economy.
The MPC will review developments in the global and domestic economic environment since its last meeting held on May 18 and 19, 2015. The meeting is coming against the backdrop of incessant pressure on the naira-dollar exchange rate, creeping inflation and slowing Gross Domestic Product growth rate. The naira traded at 241.5 per dollar at the street market on Thursday, up from 235 to the dollar the previous week.
The forex markets, which closed for public holiday on Friday, will be further closed on Monday (today). The naira has been under persistent pressure since the CBN stopped forex sales to importers of 41 items last month. “Dollar supply remains weak in the market, yet demand is rising daily,” one dealer at the parallel market said.
On the interbank market where the CBN exerts tight control, the naira is trading in a narrow margin. It held at 196.95 to the dollar at the interbank rate on Thursday. Foreign exchange dealers, however, expect the MPC or the CBN to come up with a policy to stabilise the naira this week, although the central bank had said it was not bothered about rates at the thinly traded black market. “We expect the central bank to make some statement on the forex exchange market at its Monetary Policy Committee meeting this week,” said a trader at a commercial bank.
The National President, Association of Bureau De Change Operators, Alhaji Aminu Gwadabe, said the association expected the CBN would come up with policy to stabilise the naira this week. Already, he said the association had warned its members against speculative activities, adding that the CBN had restated its resolve not tolerate such.
He said at the naira had gained some momentum, rising from 241 to 237 against the greenback. This, he said, followed some of the recent moves by the central bank. Gwadabe, however, said the recent CBN policy demanding BDC operators to collect prospective customers’ Bank Verification Number before selling forex to them was premature. According to him, the central bank needs to give BDCs time before implementing the policy.
He said the association was presenting a position paper on the matter to the CBN. The Head, Investment Research, Afrinvest West Africa, a research and investment advisory firm, Mr. Ayodeji Ebo, and his team, expects the MPC to take decisions in the meeting on Friday.
In its report on the MPC meeting, the team said, “Recent developments in the money market will also not escape the sight of the MPC. The market is currently awash with speculative naira liquidity due to the recent state bailout fund released by the Federal Government. “On the back of the foregoing, MPC will need to deliberate on alternative methods of stabilising FX and restoring confidence in the capital market without leading to a run on the external reserves.
While we have suggested floating of the naira and establishment of a futures market in our recent publication, we observed the CBN seems to be averse to this. “Hence, we imagine the MPC decision favouring one of the following possible scenarios: Leave all policy rates unchanged and continue to adopt administrative measures to curb naira volatility while rebuilding external reserves; or increase the naira intervention rate in the Interbank market and raise Cash Reserve Requirements to 35 per cent to reduce naira liquidity that could spur FX speculation; or increase Monetary Policy Rate by 50bps to attract Foreign Portfolio Investment while subsequently loosening restrictions on FX trading.