The naira weakened against the dollar across the official and parallel markets on Thursday, manifesting four consecutive days of losses.
The naira settled at N1,309.81/$1 at the Nigerian Autonomous Foreign Exchange Market (NAFEM) window on Thursday, representing a N1.36 decline compared to N1,308.52/$1 on Wednesday.
Similarly, at the parallel market, the naira plunged by N150, when it closed at N1,450/$1, compared to N1,300/$1 the previous day, marking one of its biggest losses in a single day in recent times.
However, daily turnover rose significantly by 60.99 per cent, to $318.08 million, compared to Wednesday’s $197.54 million.
The highest spot rate stood at N1,435 with the lowest spot rate recorded at N1,100.
The naira’s unimpressive outing came on a day analysts warned that its positive showing in recent times might be short-lived unless the fiscal authorities complemented the various policy initiatives of the Central Bank of Nigeria (CBN) aimed at strengthening its position against the dollar.
Earlier in the month, investment banker, Goldman Sachs Group, declared that the naira had established itself as a top-performing currency globally, after it surged 12 per cent against the dollar.
But analysts told THISDAY that though the apex bank had succeeded in calming the market to restore confidence, this “may not be sustainable, especially against the backdrop that the foreign portfolio investors will be exiting in a few months and they will be requiring FX to do so”.
They argued that the fundamental issues that would help the naira regain strength in the long run had not been tackled.
The analysts, in separate interviews with THISDAY, specifically pointed out that the fundamentals that will increase the supply of foreign currencies and reduce the demand of same were still not in place.
They attributed the naira’s recent recovery to government interventions, particularly the succour provided by the recent Afrieximbank’s $3.3 billion lifeline.
The analysts urged the government to take advantage of the relative moderation of FX to work on a sustainable solution to grow both oil and non-oil exports and improve the ease of doing business, including tackling insecurity, to attract Foreign Direct Investments (FDIs).
President, Association of Capital Market Academics of Nigeria, Professor Uche Uwaleke, told THISDAY, “What the CBN has succeeded in doing is to calm the market to restore confidence, which is an essential step.
“The clearance of forex backlog and resumption of FX sales to BDCs were necessary to improve liquidity in the market.
“The increase in interest rates concerning government securities has helped to increase foreign portfolio investments, thereby increasing the capacity of the CBN to intervene in the FX market.”
Uwaleke added, “It’s equally important to note that the clamp down on Binance and directives to banks on net open position have gone a long way to curtail speculative FX demand.
“So, all of these have combined to bring about the naira appreciation that we see today.
“But this may not be sustainable, especially against the backdrop of the fact that the foreign portfolio investors will be exiting in a few months and will be requiring FX to do so.
“The government should take advantage of this breather by working on a sustainable solution which is growing both oil and non-oil exports, and improving the ease of doing business, including tackling insecurity, to attract Foreign Direct Investments (FDIs).”
On the demand side, Uwaleke urged the government to improve the quality of health care and education to reduce capital flight due to education and health tourism.
He said, “Nigerians should be encouraged to patronise locally made goods through massive sensitisation and incentives.
“The good news is that the government is making efforts to fix the refineries and together with the Dangote Refinery, we expect fuel imports to reduce considerably shortly.
“We understand that this is gradually beginning to happen with a reduction in the import of diesel, which is rubbing off positively on exchange rate stability.”
In his intervention, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, called for more enduring and sustainable measures by the government.
Ekechukwu said, “The fundamental issues that will make the naira regain its strength in the long run have not been addressed. In my opinion, the recovery recorded recently appears to be temporary. The fundamentals that will increase the supply of foreign currencies and reduce the demand of same are still not in place.
“The recent CBN interventions have been mainly responsible for the recorded improvement.”
According to him, “Tightening of the economy using monetary policy tools has also contributed to the recovery, but not significantly.
“More of these solutions are outside the purview of the apex bank, as both fiscal, other government policies, and trade policies must be deployed also.”
Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, also said naira’s performance appeared to be temporary.
Shelleng said of the naira’s recent positive showing, “Without fiscal support, it would not be sustainable in the long run.
“The naira has rebounded simply because of government intervention after receiving funds from Afriexim Bank.
“The CBN was able to clear FX backlogs reported to be around $7 billion (apparently, only $2 billion was genuine demand), they resumed sale of FX to BDCs, hiked up interest rates to attract FPIs and have reportedly pumped over $1 billion of the country’s foreign reserves to manage the FX volatility.
“On the face of it, the indications are that this performance is temporary, and without fiscal support, it would not be sustainable in the long run.”
On his part, however, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, argued that the “naira’s positive performance is not temporary”.
Gbolade said, “The fundamental challenges mitigating against the strength of the naira are wide-ranging but the CBN has been able to address some of these issues that have given rise to the recent positive performance of the naira against the US dollar.
“The complex web of arbitrage between the banks, IMTOs, and BDCs has been addressed to a large extent.
“The lost confidence due to the country’s inability to meet its obligations as regards FX forward payments for LCs established and airline accumulated FX payments has been regained after these obligations were met by the CBN.”
Gbolade stated that the CBN had also streamlined and strengthened policies around FX utilisation by banks and customers to the extent that local loan facilities could no longer be secured with FX in the bank’s customers’ accounts.
He said, “I want to believe that the naira’s positive performance is not temporary because of the perceived determination of the government through the CBN to strengthen the national currency with measures being put in place now and other policies to be implemented both on a long- and short-term basis.
“The continuous positive performance of the naira is also precedent on the ease of doing business in Nigeria, increased FDIs and increased business activities in all the key sectors of the economy to boost increased exports to increase revenue and strengthen the nation’s reserves.”
James Emejo and Nume Ekeghe
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