There was growing frustration over the continued depreciation of the naira against the dollar at the weekend, with the local currency weakening to N1, 099 against the greenback at the official window and N1, 200 at the spot market.
President Bola Tinubu had severely criticised former Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, for, allegedly, running the economy aground and mismanaging foreign exchange.
Tinubu later suspended some of the initiatives in place since Emefiele to stimulate domestic production as well as boost FX earnings. At the inception of the current administration, the naira stood at N462 to the US dollar at the official rate and N758 at the black market.
One of the drastic actions embarked upon by Tinubu on assumption of office was unifying the exchange rate as well as floating the local currency.
By that move, he was believed to have only yielded to pressure from international investors and rating agencies, who had long pressured Emefiele to allow market forces determine the real value of the naira.
Before the floating of the local currency, CBN had adopted a managed-floating regime, where the bank intervened in the market when necessary.
The previous leadership of the apex bank had argued that countries that had free-floated their currencies had stronger export base and were heavily industrialised, and, thus, were able to earn foreign exchange.
However, since the administration of Tinubu floated the naira and unified the exchange rate, the local currency had been under severe pressure with no end in sight at the moment.
The FX market continues to face unprecedented liquidity challenges due to demand pressure amid limited capital inflows.
The implication of the continued depreciation of the naira is increased hardship on Nigerians amid rising inflation, now at 27.33 per cent as of October.
Analysts, who spoke to THISDAY yesterday, expressed worry over the continued weakening of the naira. They attributed the weakening of the exchange rate to the activities of currency speculators and hoarders.
Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said the situation called for concern.
Ekechukwu said, “We should, indeed, be concerned because there is no seen or known measure in sight that is likely to turn the tide positively.
“We need to ensure our refineries work as soon as possible to reduce pressure on our reserves.
“All incentives should be on export and export alone, while we encourage manufacturers to consider backward integration and source their raw materials locally.”
In a similar vein, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, expressed worry that the depreciation of the naira will further affect the purchasing power of the people at this period.
Gbolade said, “The continued depreciation of the naira, despite the best efforts of the CBN, calls for concern, especially at this yuletide period, where consumer spending is expected to increase.
“The depreciation of the naira will definitely affect the purchasing power of the people at this period.
“The government should come up with temporary measures to stem rising cost of food products so that people can celebrate the festive season with some happiness.”
On his part, Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said, “As long as the CBN fails to control the FX inflows and outflows, the country will continue to lose the battle with currency devaluation.”
Shelleng added, “A large part of this is driven by speculation. Buying FX and hoarding have continued to be one of the most lucrative investments for wealthy individuals in Nigeria.
“The harsh reality that Nigerians must confront is that the value of the naira against the dollar cannot suddenly change until we become net exporters and there is increased demand for our currency.
“The fact that we have low domestic production means we are heavily reliant on importation. This in turn puts pressure on our economy.”
On Friday, the naira experienced a staggering 30.35 per cent depreciation, from the previous day’s rate of N843.07. On the official market, intra-day trade from the data obtained, which was not updated for yesterday on the FMDQ, showed the highest spot rate and another all-time low at the official window.
The daily turnover recorded on Friday showed $70.90 million, a decline compared to $137.35 recorded on Thursday.
Head of Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi, attributed Naira’s sharp fall to a fundamental imbalance in dollar supply and Nigeria falling short of its crude oil production quota.
Olubunmi said, “It is a simple issue of demand and supply. So, what we’ve seen is that the CBN has also admitted now that the supply of dollars is not as much as the demand.
“Also, there is a quota for crude oil production we can’t meet and we know that our major earner of FX in Nigeria is crude. So, the demand is more than the supply and, unfortunately, that is what is driving it.
“Also, remember that CBN has obligations that are past due, that is the forwards they have not been able to meet, which is also hampering portfolio or foreign investors from coming in.”
He added that with the current trajectory or unclear policy direction, the slide might continue to happen at both the official and parallel market.
“This is a very difficult scenario and uncharted waters because if you have a typical scenario with things in place, you can be predicted, but the way things are going, unless something is done the slide may continue.”
@THISDAY