Naira slumped further on Tuesday by about 1.43 per cent on the second day of the new foreign exchange policy by the Central Bank of Nigeria (CBN), exchanging at the rate of N284 to the dollar at the close of the day’s business.
At the close of business on the opening day on Monday, Naira had crashed by about 40.7 per cent, from the official fixed exchange rate of N199 to the dollar last Friday, to a new low level of N280.
Shortly after the opening bell for the day’s trading, the Naira strengthened momentarily to N258, from yesterday’s closing rate of N280 to the dollar, before dropping to N286 at about 9.30 a.m., the lowest level for the day.
Although the exchange rate rallied back to about N281.50 later in the afternoon after the CBN injected about $100 million for the day’s trading, it dropped further to about N284 at about 5.20 p.m. shortly before the close of the day’s transaction.
At the parallel market, the Naira began on a cautious note at the rate of about N347 to the dollar, consolidating marginally on the spot, from the closing rate of N345 on Monday.
But, by the close of the day, the Naira had recovered to about N337 against the dollar, with the CBN expressing optimism that its ultimate target of the Naira settling at about N250 would be realized.
CBN spokesperson, Isaac Okorafor, said on telephone durig a chat that although the bank was determined to intervene regularly according to the dynamics of the market, the general expectation remained that the market would continue to grow gradually and steadily as more liquidity comes in.
Traders at the market said that Naira’s consolidation at the market reflected the impact of the flexible exchange rate by the CBN.
A Lagos-based financial market Research Analyst at FOREX Time, Lukman Otunuga, said the general expectation was that the Naira was poised to decline further as the natural forces of supply and demand continue the rally towards an equilibrium price level.
Mr. Otunuga said the CBN flexible exchange rate policy could be beneficial for the country’s economy struggling to recover from the negative impact of declining global oil prices at the international market.
He said not allowing the exchange rate of the Naira to be fixed could be the first step in attracting foreign investors, boosting domestic import substitution, while potentially abolishing the parallel black market exchange rate, which rose to as high as N370 to the dollar in recent times.
Although there were still concerns over slowing domestic growth, Mr. Otunuga said the CBN’s action has boosted overall sentiment, which has allowed the Nigerian stock markets to surge over 8 per cent in local currency terms.
“With domestic petrol prices remaining stable and foreign airlines potentially resuming their flights amid a free floating Naira, there is optimism that economic growth may resume in the long term, despite fears of a technical recession in the second quarter,” Mr Otunuga said.
He however advised the CBN to act fast, as there were still lingering concerns that a weakening Naira could punish the citizens further, while causing inflation to spiral out of control.
