LAGOS, JANUARY 2, 2017 – The naira beat analysts’ expectation and closed the year 2016 at 490 against the United States dollar at the parallel foreign exchange market.
Due to the intense pressure on the naira, currency and financial analysts had predicted that the local currency would hit 500/dollar on or before the New Year.
However, the naira was sold on the streets of Lagos and Abuja at 490/dollar on Saturday, the same rate it closed on Friday.
The local currency was expected to witness another round of decline against the dollar in the days preceding the New Year as an increase in dollar flows from Nigerians living abroad coming home for holidays fell short of expectations.
A Director at Union Capital Markets, Mr. Egie Akpata, said it was really difficult to predict the direction of the naira shortly before the New Year because part of the currency market had shut down for the year.
“You can’t really predict the market because part of the market had shut down for the New Year. Things will really take shape this week,” he said
On Thursday, the naira closed at 490 to the dollar, the same level it closed on Wednesday.
The naira had fallen against the greenback from 485 to 490 on Wednesday, reversing part of the gain it recorded the previous week.
The local currency fell to 495/dollar the previous week.
The naira has been under severe and continuous pressure as the scarcity of the US currency continues to create ripples in the financial markets and economy.
The CBN had about two weeks ago sold about $1bn on the forward market to clear a backlog of dollar obligations in selected sectors, Reuters reported on Thursday.
The traders said that the dollar sale, the largest special auction by the CBN since the naira peg was removed in June, was made two weeks ago, Reuters reported.
Outstanding dollar demand was about $4bn before June, when the 16-month-old peg was removed. Efforts to cut dollar demand have been largely unsuccessful due to low oil prices.
Crude sales account for about 90 per cent of Nigeria’s foreign exchange earnings.
Traders said the CBN told banks to prioritise airlines, manufacturing firms, petroleum products importers and agriculture sectors, the sectors worst hit by the dollar shortage, in the auction.
Some weeks ago, the naira plunged to 470/dollar, down from 455/dollar on the back of dollar shortage at the official and parallel forex markets.
The naira has, however, consistently closed around 305.5 a dollar level since August via the official window.
The CBN had on June 20 lifted its 16-month-old naira peg, following overwhelming dollar demand from companies and calls for a free floating of the naira by industry experts.
Experts, however, argued that the central bank had yet to fully allow the naira to float freely.
The Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said there was a need to overhaul the foreign exchange market and policies, in order to stabilise the forex market.
“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,” he said.
The CBN has struggled to support the naira as the country’s external reserves continue to fall.
Dollar shortages have caused many companies to halt operations and lay 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.
Economic and financial experts said unless the lingering dollar supply problem was abated, the volatility in the exchange rate and the consequent economic challenges might continue.
