The naira slid to a new record low of N506 against the United States dollar on the parallel market yesterday on rising demand for dollars.
Saturday Telegraph gathered that the naira’s decline was caused by parallel market operators trying to tempt dollar holders to sell.
The local currency has hovered near the N500 to the dollar level for more than two weeks. It has remained relatively stable on the official interbank market, trading at between N305 and 315 per dollar as the Central Bank of Nigeria (CBN) continues to ration dollar supplies.
Financial analysts are divided over the naira’ outlook for this year with most forecasting the local currency may depreciate further in the coming months despite the external reserves rising to a year high at $28.28 billion as at February 2, according to CBN data. In a recent note, Chief Executive Officer of Financial Derivatives Company, Mr. Bismarck Rewane, predicted that the naira might fall to around 520/dollar.
The apex bank recently sold $660million in three and five-month currency forwards at an auction aimed at clearing a backlog of dollar demand, but traders said this was not adequate to satisfy the market. Reuters quoted Head of Africa Research at Standard Chartered Bank, Razia Khan, as saying: “Despite rising FX reserves, it’s the amount of the FX that is supplied that matters.
The parallel market, by its nature, is particularly sensitive to demand-supply imbalances, and has a tendency to overshoot.”
The naira lost a third of its official value against the dollar in 2016 after the CBN scrapped its peg for the currency in June, allowing the naira to float on the interbank market, as part of efforts to alleviate dollar shortages.