CBN Eyes Exchange Rate of N500 to Dollar

Central Bank of Nigeria [CBN] is reportedly pushing for exchange rate of N500 to a dollar at the parallel market to discourage importation of frivolous items into the country and in the process, conserve the nation’s dwindling foreign currency revenue.

The naira on Wednesday depreciated further to N385 per dollar in the parallel market as demand for foreign exchange intensified in the market.

Business Journal quoted an unnamed senior official of the CBN told Abuja as saying that “Officially, we are alarmed at the rising exchange rate between the Naira and major international currencies. But unofficially, we are really optimistic that the expensive cost of major foreign currencies will discourage our people from travelling abroad to bring in all manner of goods the country could either produce domestically or do without entirely. For us at the CBN, the development is a double-edged sword.”

According to Business Journal, in the same vein, a market analyst in Lagos said the CBN could be the biggest beneficiary of the rising dollar value against the Naira.

“Who wants to import at a loss? What the CBN failed to achieve by banning 18 items, could now be achieved through the back door because many importers will simply think twice before travelling to Dubai or China to bring in second-hand clothing that could become very expensive for people to buy. The end result would be less importation. The only challenge would be for genuine operators in the real sector who need foreign exchange to import raw materials and machinery for industrial production.”

Affirming the situation, an importer, Mrs. K. Obioma said: “Normally, l travel to Dubai or London once a month to bring in mostly used consumer goods but the current high cost of dollar has become a real headache for my business. And that explains why l have not made any trip since this year. The issue is: how many people can afford such goods at the new price and how will l recoup the investment and make profit? Of course, l’m now looking inward for a business l can easily transact locally without the problem of dollars.”

On Wednesday, the Naira depreciated further to N385 per dollar in the parallel market as demand for foreign exchange intensified in the market.

This implies the naira has depreciated by N60 against the dollar this week in the parallel market, when compared with the closing exchange rate of N325 per dollar Friday last week.

The currency however remained stable at the official interbank foreign exchange market as the interbank rate closed N199.34.

Thus the gap between the interbank and parallel market rates widened to N185.66 per dollar from N127.53 Friday last week.

It was also reveals that the naira depreciated against the British Pounds to N505 per pounds in the parallel market implying N65 depreciation when compared with the closing rate of N440 Friday last week.

Investigations reveal that the sharp depreciation of the naira in the parallel market this week is driven by increasing demand by importers sourcing dollars to pay for imports from China.

According to a BDC operator who spoke on condition of anonymity, “You know China had been on its one month annual holidays. But they resumed work on Monday, and people have to complete payment for goods ordered before the holidays. They had made 30 per cent down payment to order the goods and they now have to pay the 70 percent balance otherwise they will lose the 30 percent. That is why they are desperate and ready to buy dollars at any rate. Meanwhile supply is scarce and those who have dollars are not willing to sell because they might also need the currency soon”.

The naira has been on steady decline since Tuesday January 12th 2016, when the Central Bank of Nigeria (CBN) stopped weekly dollar sale to BDCs. Prior to this action, the naira traded at N265 per dollar in the parallel market. Consequently the naira has depreciated by N80 in the parallel market since the CBN took the action.