Naira depreciates slightly against dollar

The naira on the last trading day of last week slipped for the first time in the week against the dollar on strong demand for the greenback in the interbank market, traders said.

The naira depreciated to N148.80 to the U.S. dollar from N146.60 on Thursday. Dealers said many customers turned to the interbank market to fulfill their dollar demands, which the Central Bank of Nigeria (CBN) was unable to meet in its auction earlier last week.

However, the CBN has maintained that the RDAS would bring about stability in the forex market. “A lot of customers bought dollars through the interbank to meet the shortfall from the CBN’s Wednesday’s auction. This pushed down the naira’s value,” one dealer said.

The CBN sold $205 million at its Retail Dutch Auction System (RDAS) on Wednesday compared to offers for $659 million. The naira closed the week lower despite the inflows of about $422 million from the local units of Royal Dutch Shell, Exxon Mobil and Chevron, traders said.

Experts link fluctuating exchange rates to excess liquidity

Odidison Omankhanlen, Lagos

Apart from the sharp drop in prices of oil in the last quarter of 2008, financial experts have identified the impact of excess liquidity and easy policy of the Central Bank of Nigeria (CBN) as the factors responsible for the current fluctuation in the nation’s foreign exchange market.

Speaking at foreign exchange seminar organised by Access Bank plc in Lagos at the weekend, the Managing Director, Financial Derivatives Company, Mr. Bismark Rewane, noted that though the sharp drop in oil prices had an impact in the foreign exchange, misinformation on the part of the regulatory authorities were also responsible for the volatility.

Rewane stated that it was when the CBN allowed 10 per cent devaluation in the naira in December that the currency crashed in the parallel market, making it a potent issue in the economic discourse.

He observed that the accommodation of banks at the extended window and some other short term policy measures undermined the value of the naira, stating that the Federal Government had already accepted the International Monetary Funds (IMF) provisions.

“My view is that in addition to the oil factor, it was the impact of the excess liquidity and easing policy of CBN. The accommodation of banks to a tune of N900 billion at the extended discount window and an M2 growth of over 54 per cent in 2008 played a major role in undermining the value of the naira. The CBN cut the MpR, reduced liquidity ratio and cash reserve ratio, making funding easily available to the banking system, ran contrary to a strong naira policy,” he said.

He observed that the recent intervention in the market through the Retail Dutch Auction System (RDAS) had been relatively successful in achieving exchange rate stability, stressing that the policy would go a long way in restoring the value of naira.

On his part, the Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, hinged the exchange rate volatility to the day the budget proposals were presented to the National Assembly.

According to him, there was the need to defend the deliberate devaluation of the naira, stressing that “temporary mistakes could inflict permanent scars.”