Home / ASSETS & FINANCIALS / Hot Money Threatens CBN’s FX Stabilisation Efforts

Hot Money Threatens CBN’s FX Stabilisation Efforts

  • Hot Money Threatens CBN’s FX Stabilisation EffortsAs naira value falls again

There are indications that the efforts of the Central Bank of Nigeria (CBN) at stabilising the foreign exchange (FX) may be threatened by the hot money in circulation chasing the dollars.

Hot money is the money from one country to another targeting investment opportunities for a short-term profit. Specifically, looted funds by political leaders are mounting pressure on the demand for FX.

A source from Bureau de Change (BDC) told media that the demand for the green back was very high and that the buyers were willing to buy at any available price.

Also, the demand for dollar by importers is increasing at an alarming rate, the source said. Consequently, the local currency that closed at N213/$ on Friday last week, traded at N218/$ yesterday. This is about N5 or 2.34 percent depreciation against the dollar at the BDC segment of the FX market.

An official of Bureau De Change Association of Nigeria (ABCON) said the rumour of further devaluation of naira and the likely stopping of the CBN window to BDCs was also creating high speculation and hoarding in the FX market.

Analysts have long been calling and expecting devaluation of the naira by the regulator. Bismarck Rewane, managing director/CEO, Financial Derivatives Company Limited, and Jurgen Hecker, France-based financial expert and media trainer, over the weekend, advised the apex bank to devalue the naira as one of the likely responses to the realities in the global oil market.

Razia Khan, managing director, chief economist, Africa, Global Research, Standard Chartered Bank, said in the Standard Chartered-MNI Business Sentiment Indicator (BSI) that “while the ‘effect of the NGN exchange rate’ indicator has been consistently weak for much of the series’ history, current conditions improved somewhat in July, rising 25.3 percent month/month to 27.2 (from 21.7 in June and only 16.8 in May).”

However, future expectations declined 18 percent month/month, suggesting that Nigerian companies still expect eventual official naira depreciation, even though interbank FX rates are being held steady in the near term.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

× Get News Alert