The Central Bank of Nigeria’s intervention at the interbank foreign exchange market failed again on Thursday as the naira crashed further against the dollar to N176.10, down from Wednesday’s N174.15.
Foreign exchange dealers said the CBN stepped up dollar sales, selling close to $250m to support the naira, but the action failed to quench the demand for dollars, which was mostly from importers.
The naira, which had been on a gradual slide against the greenback in the past few weeks, however, entered a sharp fall mode last Friday, as it fell from N169 to N172 and then to N174 on Wednesday.
Several interventions by the CBN during the week at the interbank market had failed to lift the national currency.
The naira fell further by 1.25 per cent on Thursday to close at the new low of N176.10 to the dollar despite the central bank’s intervention.
According to forex dealers, the high demand for dollars has been fuelled by importers. The nation imports around 80 per cent of what it consumes.
The CBN had, in a bid to preserve the external reserves, a few weeks ago barred importers of certain items including electronics and generators from buying dollars at the central bank’s official forex market called Retail Dutch Auction System.
The CBN referred the importers to the interbank forex market for their dollar needs.
Some analysts said this action by the CBN was partially responsible for the naira’s depreciation at the interbank level.
Some analysts termed the move as a partial devaluation of the naira at the interbank market by the central bank. They said the action could lead to inflation in the medium or long term.
The naira has witnessed sharp depreciation at the parallel market in the last one week.
It fell against the dollar at the parallel market to N180 on Tuesday, down from around N175. On Thursday, it went further down to N183.
Industry analysts are however optimistic that the naira will close the year moderately at about N170 at the interbank market.
Beyond the demand for dollars by importers, some analysts said the falling global oil prices and the uncertain outlook for the naira had sparked off panic buying of dollars by investors.
Activities of speculators have also contributed to the high demand for the greenback.
Analysts said that the demand for the dollar had been growing while the supply was dropping.
“When there is an uncertain outlook for the naira, it will fuel speculative and panic buying. The capital and bond markets are not good now; investors are divesting and they will want to repatriate their funds in dollars,” a financial market analyst, who pleaded anonymity, said.
According to the Head of Research, Sterling Capital, Mr. Sewa Wusu, the entire naira crisis can be linked to the falling oil prices.
He said the naira problem could be traced to the activities of investors who were reacting to the potential danger in the economy as a result of the falling oil prices.