As concerns continue to mount over the modalities for the proposed flexible exchange rate regime to be introduced by the Central Bank of Nigeria (CBN), the naira depreciated further to N361 to a dollar on the parallel market yesterday, as against the N357 to a dollar it closed on Monday.
The nation’s currency had fallen sharply from N350 to a dollar it closed the previous week to N357 to a dollar on Monday.
Dealers attributed this to the uncertainty over the flexible exchange rate as there have been speculations that the policy might be announced this week. As a result of this, currency traders have been hoarding the dollars in anticipation that its value against the naira would strengthen once the policy is announced.
CBN Governor, Godwin Emefiele, had at the last monetary policy committee, said the central bank resolved to introduce greater flexibility in the foreign exchange market structure and to retain a small window for critical transactions for prospective investors.
“With the foreign exchange market framework now ready, the MPC voted unanimously to adopt greater flexibility in the exchange rate policy to restore the automatic adjustment properties of the exchange rate,” he added.
The CBN met with bank treasurers and the Nigeri
a Labour Congress (NLC) last week as it continued to engage stakeholders on its policies.
Speaking on the much-awaited guidelines for the flexible exchange rate, acting Director of Communication at the CBN, Mr Isaac Okoroafor, said: “The modalities have not been released. The governor has explained that we have to find a way of creating some flexibility around the foreign exchange management as it is today and the details would be released in due course.”
Meanwhile, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, has reiterated that a misaligned currency and forex shortages were part of the problems hurting the economy.
Rewane, in a latest presentation titled: “Nigeria – Technically in Recession, Could this have been avoided?” he presented at the Lagos Business School’s monthly economic news and views, noted that with Nigeria’s external reserves at $26.3 billion, it could only cover 4.28 months’ import.
He stated that a flexible exchange rate policy has a long term impact of attracting capital inflows.
“CBN preparing guidelines but caught between a rock and a hard place. External reserves minus arrears are lower than desirable. There is the fear of a run as soon as cap is removed. Funding sources for a second forex window in doubt,” he said.
Creating possible outcomes on the planned flexible exchange rate, he predicted that the critical window rate could be N220/$; Interbank – N280/$ and parallel market– N320/$.
“Initial divergence will be followed by convergence and slight naira appreciation. Rationale- likely to lead to exchange rate unification. Guidelines and modalities likely to be effective June 13,” he added.
Minister of Finance Kemi Adeosun led a team of officials to meet bond investors in London yesterday. Tapping the offshore bond market this year is crucial for Nigeria to fund a budget of N6.1 trillion ($31 billion) meant to stimulate the economy, according to Rand Merchant Bank.