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Naira, 700k down

By Babajide Komolafe
The Naira yesterday depreciated heavily against the British pounds and euro, losing an average of 700 kobo against the two currencies in the parallel market.

Vanguard’s investigation revealed that the exchange rate of the pounds shot up by 600 kobo to N260 from N264 on Monday. Similarly, the exchange rate of the Euro rose by 800 kobo to N228 from N220.

Parallel market operators attributed the sharp depreciation of the naira against the two currencies to the recent depreciation of the dollar.

This, they said, diverted foreign exchange demand for the dollar to the two currencies.The exchange rate of the two currencies had remained stable in the market for some time due to weak demand.

But yesterday, the situation changed as more and more foreign exchange end-users demanded the two currencies.

It would be noted that the naira has persistently depreciated against the dollar since the reintroduction of Wholesale Dutch Auction System (WDAS) last July 13.

Yesterday, the naira depreciated further by 50 kobo at the official market where the exchange rate rose to N150.25 per dollar from N149.75 per dollar.

Prior to WDAS, the exchange rate was N146. Hence, with the increase to N150.25 yesterday, the naira has depreciated by 425 kobo under WDAS.

At the inter-bank market, the naira depreciated by 866 kobo as N156.84 exchanged for one dollar last week as against N148.17 at the beginning of the month. Last week the naira lost 400 kobo to the dollar at the parallel market as the exchange rate rose to N158 per dollar from N154 per dollar.

The persistence depreciation of the naira is however attributed to foreign exchange speculation resulting to increased demand for foreign exchange at the official market.

Analysis of the foreign exchange demand and sales in the six auctions conducted by CBN before and after the introduction of WDAS shows demand for foreign exchange shot up by 351 per cent to $3.16 billion from $861.8 million.

Total amount sold also rose by 56 per cent to $1.19 billion from $$764. Average demand per auction session went up by 313 per cent to $526.7 million from $127.4 million, while average sales rose by 38 per cent to $198.4million from $143.6 million.

Foreign exchange operators attributed the speculative activities to belief that given the continued decline in the nation’s external reserve, the Central Bank of Nigeria would not be able to sustain the current exchange rate of the naira hence further depreciation of the naira is inevitable.

But the apex bank on Tuesday moved to forestall speculation with foreign exchange purchased from the official market. It barred interbank trading of foreign exchange purchased from the official market.

In a circular to banks titled, “Non Transferability of Funds from Wholesale Dutch Auction System (WDAS) Among Authorised Dealers”, with reference TED/FEN/FPC/GEN/01125, the apex bank said that banks can no longer use foreign exchange sourced from the official market for interbank trading. Such funds, it said should only be used to meet customers demand for foreign exchange. It also directed that banks should keep separate books for their interbank foreign exchange transactions and WDAS foreign exchange transactions, and make the books available to it examiners.


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