The naira, which has been under pressure in the last few weeks, on Monday crashed against the dollar to N173.20 at the interbank market, causing panic in the financial sector.
There are also indications that this has prompted the Central Bank of Nigeria to call all bank chief executive officers to a meeting in Abuja in a bid to save the naira from further crashing.
A top CBN official, who spoke under the condition of anonymity because he was not authorised to speak on the matter, said, “The CBN is trying to employ moral suasion now since efforts to prop up the naira in the last few weeks have not brought any result. The CBN is trying to meet the bank CEOs to persuade them to take measures and actions that will bring the naira up.
“The CBN believes that some banks are advising their customers that have major future obligations to bring them forward because they don’t know what the exchange rate will be in January. They want them to assure their customers that nothing will happen to the naira in the near future.”
Analysts believe that aside investors who have brought their obligation forward, the activities of speculators and foreign portfolio investors have combined to increase the demand for dollars at the interbank level.
“The activities of speculators as well as foreign portfolio investors are bringing up the naira. This is the time the CBN needs to come up and tell us the outlook for the currency. They also need to stop the 10k spread for sale to counterparties,” a forex dealer, who spoke under condition of anonymity, said.
The naira last traded above N173 mark in February this year when President Goodluck Jonathan suspended the former Governor of the CBN, Mallam Lamido Sanusi, analysts said.
It traded at N169 to the dollar on Friday. It however fell by about N4 on Monday, barely 24 hours after the Federal Government unveiled new austerity measures aimed at cushioning the effects of the falling oil prices on the economy.
Financial and money market analysts said the market was reacting to the new string of austerity measures unveiled by the Economic Management Team on Sunday.
“The market is reacting to the new string of austerity measures unveiled by the Federal Government on Sunday; the demand for dollar is very high now,” an Ecobank analyst, Mr. Kunle Ezun, said.
“Nigeria is an oil-dependent nation and anything that happens to the oil revenue will affect the economy. Investors and market operators are factoring some of the new measures into their plans; this is why you see the naira falling by such a big margin a day after the announcement,” he added.
Money market sources revealed that the naira closed at N173.20 on Monday, despite the CBN’s intervention at the foreign exchange market to prop up the currency.
The CBN, it was learnt, asked banks to bid for $2m each in a move to shore up the local currency, but the lenders avoided the forex auction as the central bank was restricting the re-sale margins to curb speculation.
The naira has gone through difference comport levels at the interbank market in the last few weeks, trading between N167 and N172 to the dollar, according to market analysts.
Ezun said, “It is like the naira is trying to find a new comfort level at above N170 to the dollar now. It used to be around N168 and N169. I, however, believe as the CBN comes up to assure the market, the naira may appreciate back at the interbank level soon.”
But the Ecobank analyst warned that the CBN would “need to act as quickly as possible. They need to bring it back to below N170.”
“The CBN is empowered to support the naira. It will not allow it flow freely. If it does, it will lead to huge depreciation or devaluation.”
An analyst at Afrinvest West Africa Limited, Mr. Ayodeji Ebo, said he was not surprised by the CBN’s action, noting that it “is implied devaluation at the interbank market. It is not looking at devaluation but depreciation; this may lead to depreciation. Demand at the interbank has risen significantly at the interbank level and I am not sure they can curtail that demand.” Punch
