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The curious rebound of the Naira

The last week of July 2015 was noteworthy in Nigeria for the curious rebound of the Naira against the Dollar. In a strange chain of events, since the removal of some items from the foreign exchange market sparked off an alarming slide of the Naira in the parallel market, the Naira appreciated from N242/$ to N220/$ within the week.

The controversial decision by the Central Bank of Nigeria (CBN) on June 23, 2015, which was aimed at resuscitating local manufacturing, expanding job creation and conserving the weakening foreign reserves, had engendered a robust debate of its pertinence in the Country.

While aggrieved manufacturers and importers were engaging the CBN on modalities to consummate valid trade transactions initiated before the policy change, the banks were grappling with the growing volumes of unmet foreign currency obligations, due to the dearth of foreign exchange. The scathing “Toothpick Alert” article of July 4, 2015 by The Economist Magazine, expectedly drew the ire of many touchy Nigerians, though many others remained convinced that the eggheads at the CBN were misguided.

The immediate consequence was that players, whose imports were hitherto provided for in the foreign exchange market were forced to vie for funds in the parallel market, leading to the slide of the Naira. Speculators made brisk business out of the uncertainty as many scrambled to procure the almighty Dollar, and sold at a good margin in a couple of days. Many others stocked up on the Dollar in anticipation of a sustained slide, hoping to make a killing when the Naira perhaps slides to N350/$. The Mallams, the ubiquitous black market operators, were not left out as they thrived with the increased transaction volumes and margins.

However, by Thursday July 30, the Naira began its unlikely rebound, trading for as low as N236/$ by the close of business. The reaction was two pronged; while some anticipated a further appreciation of the Naira and quickly began disposing of their stock of Dollars, others felt it was a flash that would reverse by the next day. My Mallam friend; Zubairu had advised, “Oga, if you have any Dollar, please sell now as e fit reach N150/$ by next week.” Far-fetched, I reasoned as I couldn’t place my hands on the dynamics that could drive the recovery of the Naira to N150/$ without a corresponding reversal in the Country’s¬†negative balance of trade.

By Friday, the news of the rejection of Dollar deposits into domiciliary accounts by banks was everywhere and the real panic had set in. It was reported that banks were awash with Dollars and had taken the drastic measure when the CBN declined their request to help wire the funds overseas. Those who had no business holding the currency, became increasingly desperate to offload, leading to a further appreciation of the Naira to about N220/$ by the close of business.

Events in the coming week will be very interesting, as CBN’s Biometric Verification Number (BVN) requirement for Bureau De Change (BDC) operators kicks off. Some are predicting that the Naira will appreciate further with the resultant transparency in the market, which is expected to curb the speculative demand supposedly driving the devaluation in the parallel market.

We will watch and see which way the pendulum swings, as Nigeria’s dynamic economy have in many instances in the past defied economic fundamentals.

About Kene Okoye

A creative writer, banker, pianist, composer and music promoter, Kene documents events and presents his viewpoint in compelling narratives. He sets out to create vivid pictures with his intelligent use of words and seeks to engage, thrill, educate and inspire the reader. Come on and enjoy yourself.

17 comments

  1. Very detailed and interesting writeup about the rebound of the Naira against the Dollar.Thank you.

  2. Very interesting information, mixed blessings I guess

  3. I guess the realities of N1/$1 is glaring on our face. Certainly this week will witness appreciable rebound of Naira. However, the sustainability is what I cannot predict

  4. Chinekwu ibeabuchi

    This is an intelligent write up to say the least! Objective and not sensational. I also pray for greater rebound towards the N150/$ range

  5. Very interesting read as usual.

    Beyond the monetary policy decisions of the CBN (summarized below), the rebound of the naira is also supported by some other economic fundamentals such as presented below:

    1. CBN suspended forex sales for the import of certain products

    2. CBN restricted the transfer of forex from bank to bank there making it difficult to arbitrage

    3. (The masterstroke) CBN stopped banks from accepting forex deposit (cash) since the CBN had earlier ban trading in Nigeria with forex

    the economic fundamental side
    1. The local refinery that had been frustrated by past administration have started production there reducing/eliminating forex requored for import (especially white products)

    2. National dollar earnings that were hitherto diverted into private pockets (e.g. LNG dividend et all) are now being paid into national treasury

    3. Improved national external reserve and reduced import

    I still look forward to a general improvement in local production and import substitution due largely to improved electricity supply and production-friendly government policies

    • Thanks Bidemi. As you rightly said, local production is the key for sustained recovery of the Naira and the government has to provide the right environment for that. However, overtly intrusive monetary policies could prove detrimental and stifle the required investment in industries.

      • The current monetary policy regime is an intervention which will be lifted once correction takes place and the economic fundamentals set aright.

        Thanks for this piece again.

  6. Revealing. I got an email confirming the stoppage of deposits from my bank. I do hope the trend continues.

  7. Hadizat A. Iyoha

    Well said sir on the rebound of the Naira. My question is where do we go from here? Where are the infrastructure for local production? Where is the capacity to produce in large quantity? How stable is our electricity for major production? I think for any change to take place there should be an option in place and that is why for any policy released it seems strange and a big deal to us. I can remember 2 months back when the Dollar appreciated against the Naira people were rushing to buy BTA and PTA for keeps. Now where is the pendulum swinging to? When will this scores between Naira and Dollar be settled? Once again thank you for the latest information on our currency but let us not start jubilating until we do the needful and that is create a proper alternative for all the changes. Last week the exportation of some commodities like Dried fish, palm oil etc were banned and I can imagine what is going on in the minds of the people in these lines of business.

    • Thanks Hadizat. I appreciate your concerns as in my daily dealings with manufacturers, I see a growing sense of uncertainty and the resultant loss of confidence is already stalling planned investments in the economy. The sooner an economic team and an economic roadmap is unveiled for the country, the better.

  8. Nigerians are funny. This is the typical Nigerian leader move. You arrest a man for not using a motorcycle helmet. You say because of accidents. No one wonders who will fix the pot hole that caused the actual accident. Why are our new leaders fighting the dollar? Dollar of all currency that prices your oil you live on. How do I produce the banned imported good when there is no power, no roads? Who do we hold responsible now to provide that? Little things like sewing needles, baby diaper, food, injection water, blood bags are all imported. You think people don’t want to produce these highly demanded goods to make money? It rest on govt to provide the infrastructure and no one is talking about that. If they want to lower the value of the dollar, I dare them to put the official rate at $1= N100 or less and see what happens to the country in one week. Currency is not manipulated. It is based on several economic factors and balance of trade. Foreign reserves can also be kept in gold. Let our leaders gave real issues. I’m a medical lab scientist by the way, not an economist.

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