Stories by Babajide Komolafe

Dollar supply from two oil firms yesterday saved the naira from another sharp depreciation in the interbank market.

Vanguard investigations that prior to the sale of dollars by Shell Petroleum and Total Petroleum, the naira was trading at N205 to the dollar in the interbank market. The dollar sale however halted the trend, prompting the interbank exchange rate to drop to N200.15 per dollar, representing five (5) kobo depreciation, when compared with the closing rate of N200.10 on Tuesday. Consequently, the naira has depreciated by N6.35 kobo at the interbank market from Monday to yesterday.

The depreciation according to dealers was due to lack of dollars in the market, a situation aggravated by inability of CBN to meet demand at the bi-weekly official dollar auction (Retail Dutch Auction System).

“The CBN has not been meeting demand at RDAS. A lot of people are losing their bids for foreign exchange, and they resubmit the bids but to no avail. Some of the failed bids spill over into interbank market, but there is no dollar to meet these demands”, said a senior foreign exchange dealer, with one of the tier 2 banks.

According to Kunle Ezun, a currency analyst, in addition to shortage of supply, a lot of foreign exchange Forward contract are maturing and their volume is significant. The CBN had to sell dollars to honour these maturing contracts, and this would affect the amount of dollars available at RDAS.

A Foreign exchange analyst who spoke on condition of anonymity said that the reality is that the naira is in free fall and there is nothing the CBN can do about it. “The naira has only one direction now, and it is downward. The postponement of the election has heightened fears about the economy, and the fate of the naira. This is what people are trading. The postponement of the election is not good for the economy, and the authorities should have taken this into consideration.

The solution according to Bismark Rewane, Chief Executive Officer of Financial Derivatives Company Limited, is for the CBN to further devalue the naira to N195 per dollar.

In an exclusive interview with Vanguard yesterday said, “We don’t have the luxury of timing anymore. We have to do the right thing now. And the right thing to do is to actually reduce the amount of uncertainty, and therefore the nervousness, the jittery and the panic. We have moved from a situation where we had the luxury to pick our choices to where our choices are now picking us.

And the question is that we now need to bite the bullet. When you bite the bullet, the market will correct it. That is, if you move the currency to as much as a fair value, then the amount of naira available to everybody to buy the dollars will be reduced and naturally the naira will appreciate in the long run. But in the short run, there will be devaluation and everybody will absorb it and when they absorb it, we will now have to deal with how to make the forward adjustment which is an appreciation of the naira that will come after devaluation.”