Experts expects Naira to weaken further as Christmas approaches

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The naira on Monday tumbled against the United States dollar to 490 from 487 on Friday, as acute shortage of the greenback continued to batter the economy and the country’s foreign exchange markets.

 The local currency had consecutively closed flat at 485 for four days last week before falling to 487 on Friday

The naira has therefore been put under persistent pressure at both the official and parallel forex markets due to the severe shortage of the dollar.

The global crash in the prices of crude oil, Nigeria’s main forex earner, has brought untold hardships to Nigerians, Punch reports.

According to Economic and financial experts, the volatility in the exchange rate and the consequent economic challenges might be endless unless the lingering dollar supply problem was abated.

“The challenge with the forex market is still the supply issue; price (exchange rate) is determined by the interplay of demand and supply,” a currency analyst at Ecobank Nigeria, Mr. Kunle Ezun, had said.

The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said the Federal Government needs to access an emergency lifeline of about $10bn from the International Monetary Fund to stabilise the exchange rate and restore investor confidence to the financial markets.

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Economic and financial experts expect the naira to weaken further against the dollar as the Christmas holiday begins this week.

They also argued that the crackdown on the parallel market forex traders and the persistent scarcity of the greenback would make further weakening of the local currency inevitable.

The naira had, however, consistently closed around 305.5 a dollar at the official window since August.

A few weeks ago, the naira closed flat at 470 against the greenback over a period of over a week.

The naira had plunged to 470, down from 455 on the back of a fresh dollar shortage at the official and parallel forex markets.

After getting the Central Bank of Nigeria’s approval about two months ago Travelex and First Bank of Nigeria Limited commenced the sale of forex to Bureau De Change operators.

Some forex traders, however, said the scheme had failed to ease the biting dollar shortage in the country.

“What we get from Travelex is not sufficient,” one trader said, referring to the demand in the market.

The President, Association of Bureau De Change Operators, Alhaji Aminu Gwadabe, said the sale of dollars to the BDC operators had yet to cut across the country.

This, he said, was partly responsible for the grueling dollar scarcity.

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“There are still logistics problems in selling forex to all the BDC operators; this is what is causing this relative scarcity,” he said.

The International Money Transfer Operators had been directed by the CBN to sell dollars directly to the BDC operators to boost liquidity and narrow the gulf between the parallel and official market rates.

Due to dollar shortages many companies have halted operations and laid-off workers, compounding an economic crisis exacerbated by the fall in global prices of oil, which accounts for over 70 per cent of Nigeria’s budget revenue.

The CBN has struggled to support the naira as the country’s external reserves continue to fall.

Posted by Juliet Ekwebelam