Ex-CBN Director Faults New FX Measures, As Naira Losing Strength

The Naira is losing its resistance against the dollar a few days after it gained some margin at the parallel market.

At the weekend, the naira retreated to about N498/$ at the black market from 490/$ it sold on Thursday.

The momentary gain for the local currency came after the Central Bank of Nigeria (CBN) mandated the money deposit banks (MDBs) to sell to end-users for personal travel allowance (PTA).

Following the directive, banks have intensified campaigns on forex businesses while resurging dollar retreated momentarily. Dollar had exceeded N500/$ as speculators took over the market before the CBN’s intervention.

A former deputy director of the apex bank, Stan Ukeje, warned that the racketeers might have hijacked the CBN’s gesture and that it was not sustainable. He observed that those applying for FX for PTA might be doing so for the arbitrage.

Ukeje noted: “With little regard to the precarious inflow of foreign exchange, money deposit bank (MDBs) advertise availability of foreign currency for would-be travellers and bureau de change (BDCs) get enhanced supply of foreign currency at below Nigerian Autonomous Foreign Exchange (NAFEX) rate. The hope is to lower the expectation of naira depreciation but it does not work out that way.”

He noted that the (CBN) would run out of firepower, after which the slide of the local currency would continue.

“Those who otherwise will not travel do and those who have full information enter the market for the purpose of arbitrage because they know that the policy will not last. The supply splurge is from the CBN. When it exhausts its fire power, the slide in the exchange rate will resume,” he said.

Ukeje had earlier noted that the current NAFEX was “incomplete” as major FX earners, including the Nigerian National Petroleum Corporation (NNPC), do not play in the market.

Experts had advised that the best option for stabilising the currency crisis was setting market-clearing exchange rate as NAFEX does not establish the market equilibrium required to achieve stability.

Last week, both the World Bank and the International Monetary Fund (IMF) sought full harmonisation of the different exchange, saying it was a necessary action point to achieve stability. Though they commended the adoption of NAFEX for official transactions, they noted that a broader reform would be required to a market that supports growth.

The Central Bank had, last month, discarded the previous official rate for NAFEX, otherwise known as investors’ and exporters’ (I&E) window, on which the monetary authority had promised to pursue rate harmonisation.

With NAFEX currently trading at N411/$ last week, the differential between the two markets stands at about N85/$. Financial experts are concerned that the wide differential would continue to incentivise round tripping and other historic market manipulations.