The Central Bank of Nigeria (CBN) says the aftermath of the devaluation of the naira is “appropriately priced”. This is being distorted by black market dealers who are making exchanges around 3-5 percent below the band over the festive season.
According to a report by Reuters, the naira continues to fall to record lows, despite an 8 percent devaluation of the target band and efforts last week to slash on currency speculation by clasping liquidity.
A clash of interests
Dealers told Reuters they were trading a dollar for 180-182 naira the day before Christmas.This is as a result of the high demand for dollars towards Christmas. But amidst this development, smaller businesses are suffering major setbacks due to the rise in the dollar, especially in a country like Nigeria which is largely dependent on import.
Following the fall of the naira last week, dealers were trading at 190 to the dollar, about 6.5 percent below the lower end of the CBN’s target band. The street changers however added that trading had been very slow since the end of November, when the central bank devalued the currency.
The CBN moved to raise dollar sales to $250 million in November 2014 in an effort to manage the situation. This, however, did not affect the high demand for dollars from importers. The barring of importation of certain items was also implemented in order to preserve the external reserves. But, despite interventions, the value of the naira remains outside the central bank’s ideal trading band.
A lasting solution?
The Central Bank of Nigeria, however, recently barred banks from holding their own funds in dollars in a bid to end the speculative pressure on the naira that has seen it fall over 12 percent against the dollar this year. It was also decreed that dollars purchased on the interbank market should only be held for up to 48 hours.
Since these measures were introduced, trading has come to a standstill.
It is therefore difficult for the central bank and the interbank markets to properly decipher the naira’s fair value, with the current price on the streets where a huge amount of dollars are being bought and sold.
