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Naira drops in value to 18 months low

By Omoh Gabriel, Business Editor
The Naira dropped in value to its weakest level against the dollar for 18 and a half months, yesterday, as political uncertainty ahead of April elections contributes to panic buying, bankers who deal in foreign exchange disclosed.

The Naira ended at the close of business at N156.30 to a dollar, around the same level it traded on August 20, 2009, compared to N155.10 it traded on Monday. The drop in value confirms International Monetary Funds, IMF, projection that the Naira will exchange for N155.1 to a dollar on the average this year.

The Central Bank of Nigeria, CBN, supplied $400 million at its bi-weekly auction on Monday against demand of $435 million and requested banks to submit lists of customers buying dollars in order to verify the sources and stem the potential risk of capital flight.

It would be recalled that Vanguard reported exclusively that the Naira has been projected to further depreciate in the coming years and might exchange for N202.7 to a dollar by 2015, according to IMF evaluation of Nigeria macro-economic indices.

The projection by the multilateral institution said in 2009, the Naira would exchange on the average for N148.7 to a dollar while in 2010, it would go for N149.9 to a dollar.  In 2011, the naira is projected to exchange for N155.1 to a dollar and in 2012, it will exchange at N166.1 to a dollar.

IMF data projection on the exchange rate of the Naira further indicates that in 2013, the exchange rate of the Naira will depreciate further to exchange for N177.7 to a dollar and that in 2014, it will exchange for N189.9 to a dollar and in 2015, N202.7 will exchange for one dollar.

As at today, the Naira is already exchanging officially at N150.4 to a dollar at the official market. At the parallel market, it goes for as low as N155. The drop in the value of the Naira to N156.30 is a little higher than the IMF projection.

CBN official figures showed that in 2004, the naira exchange rate at the official market as at the end of December was N 132.86 while it was N 138.71 in the bureau de change. In 2005, the exchange rate of the naira to the dollar was N 130.29 at the official market and N 141.93 at the open market by the end of that year. CBN data equally show that in 2006, the exchange rate of the naira firmed up to an average of N 128.29 in the official market and N 129.32 in the open market.

In 2007, the naira further strengthened to exchange on the average for N 118.21 at the official market and N 121.07 in the open market. In 2008, it lost some value to exchange for N 126.48 officially and N 137.65 at the open market. In 2009, the naira lost more value to the dollar to exchange for N 153.48 in the open market.

Last year, the naira suffered some value loss and exchanged for N 154.57 to the dollar according to the CBN. This trend in the loss of value in the nation’s currency is expected to continue and would by IMF projectio
n, exchange for N 202.7 to the dollar in the next four years.

“In the past couple of days, we have seen a number of companies bringing forward their obligations because of fear that the naira could depreciate further and this has resulted in panic buying of the dollar,” a banker said.

Traders say strong demand by companies with unconfirmed letters of credit, payment on foreign credit cards and large foreign exchange purchases by bureaux de change operators are putting pressure on available dollar at the interbank. The local unit of Chevron sold $25.5 million to some lenders on Monday, which was not enough to absorb market demand.

Dealers say the central bank may have to increase the amount of dollar supply at its next auction on Wednesday to around $700 million to meet the total demand. Analysts say the naira could depreciate rapidly ahead of the April presidential elections triggering an increase in price levels for an import-dependent economy which is battling to keep inflation down to single-digit.

In the past, political uncertainty had led to currency depreciation around election time in Nigeria.

Some wealthy individuals are long dollar while most foreign investors are either liquidating existing positions in the country or have put-off new investments till after the April polls further putting pressure on the local naira currency.

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