There are strong indications that the efforts of the Central Bank of Nigeria (CBN) to stabilise the naira may have started yielding the expected results.

A CBN official last week noted that the deployment of a number measures by the bank may have turned the tide in the foreign exchange (FOREX) market and led to the severe punishment suffered by currency hoarders and speculators.

The CBN had earlier insisted that speculators were behind the market bubble since the upper week which dealt negatively on the naira, sending it down to an all-time low of almost N400 to the dollar.

The CBN governor, Godwin Emefiele, had accused speculators who connived with bureau de change operators to undermine the efforts of the bank of propping up the naira and warned that such speculators would eventually be punished by the market. Last week, it became apparent that the recent depreciation of the naira was not as a result of genuine demand but the insatiable urge of speculators, many of whom had got burnt in the sharp appreciation of the naira.

The value of the naira which started the week at N367 rose to N350 by Tuesday and N305 by Wednesday. There had been a wide gap between the selling price and the buying price on Wednesday. Money changers bought from customers at N270 per dollar but sold at average of N305 per dollar.

A bureau de change operator explained that the wide gap between the buying rate and selling rate was due to the attempt by operators to minimise their loss.

He said, “People had bought when the rate was N370, and they are already making losses. But by combining dollars bought at N270, the average buying rate becomes N320. So at N305, they are still losing about N15 per dollar.”

Although it rose again to N350 to the dollar at the close of business activities on Thursday, the naira closed the week stronger at N315 to the dollar.

Counting their losses, a good number of the sellers who had suffered huge losses confessed that they had bought at the rate of N380, hoping to sell at N400 before the sudden turn in fortunes.

Industry analysts say that a number measures taken by the apex bank lately may have led to this improvement. One is the decision to publish all FOREX sales from the inter-bank market to make for unprecedented transparency. The second is said to be the mop-up operations of the CBN which had reduced the excess liquidity behind the high speculation of the upper week. This step is said to have made the naira ‘relatively scarce.’

There was also the decision by the CBN to maintain the supply of FOREX for school fees and medicals which earlier speculated the removal from interbank FOREX eligibility had caused panic. Another reason being adduced by market watchers has to do with the rising cost and drop in demand for imported goods because a good number of Nigerians are beginning to switch consumption to local goods. This is also said to have led to a significant fall in dollar demand. Likewise, the unchanging stand of the federal government against devaluation, despite pressures from many quarters, including the International Monetary Fund (IMF), also had its own impact on the fortunes of the naira.

According to a source within the apex bank, “The aim of the CBN is to ensure that the divergence between the official and parallel rate does not exceed N3, so we are looking at a parallel market rate of N200 to the dollar because the downward trend in the pressure on the naira will be sustained. The CBN has the capacity to sustain the downward pressure and will deploy further currency management initiatives while capitalising on fiscal policies of the federal government to remain in support of non-devaluation of the naira. The current stand of the federal government on Nigeria’s legal tender is non-devaluation. It will be unwise for anybody to be hoarding dollars because we can assure you that the naira appreciation is going to trend upwards going forward.”

So far, the CBN in a bid to manage the pressure on supply has deployed over $11.7 billion to support the agricultural sector, SMEs, manufacturers, and others. This has reduced the patronage of black market by end-users and has forced rent seekers to dump the greenback, thereby creating a dollar-glut in the black-market.

It has been observed that most of the imports that were draining FOREX resources have since found local substitutes with attendant savings in FOREX and shortage of demand for the greenback, which was fuelling the pressure. This is also coming on the heels of the CBN’s instruction to commercial banks to publish the allocation of FOREX to end-users. This has in recent times ensured that the real sector of the economy and genuine users of the greenback for education and medicals have been able to access FOREX at the official rate.

Industry analysts have also described the development as a game changer for a majority of local manufacturers in Nigeria. The manufacturers acknowledged that the impact of the CBN policy on FOREX since, its inception, has more than doubled their productive capacity with attendant benefits in terms of expansion to meet increasingly higher demands for their products and services.

The analysts said, “Conveniently, since the CBN foreign exchange policy came into existence, production capacity by local manufacturers has increased from 50 per cent to 70 per cent. This has impacted on their propensity to increase exports with higher volumes which is expected to also earn Nigeria commensurate higher foreign exchange earnings.”

Speaking further, the analysts are of the opinion that the policy has helped the local manufacturers to realise the urgent need to expand because of increasing demands for their products. With global oil prices rising gradually and an upward trending external reserves, the naira is expected to regain its lost value. In the past one week, the external reserves of the country has so far improved from $27.789 billion to $27.807 billion, an $18 million improvement. Also crude oil prices at the international market is priced around $32.89 according to data made available by the CBN.
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