Has CBN Wasted 1.5 billion Dollars Defending The Naira?
The Central Bank of Nigeria, CBN has done everything in its power to save the Naira from total collapse.
This included injecting over 1.5 billion dollars into the foreign exchange market to make the dollar available and avoid scarcity that has threatened to reduce the worth of the nation’s currency.
But some observers and pundits appear confused by the poor state of the naira.
At the onset of the CBN’s injection of liquidity to the interbank market, the naira rebounded to an all-time low of 360 Naira from 520 Naira to the dollar.
But over the past two weeks, the Naira has started weakening as it traded at 410 per dollar at the close of business before the Easter break.
One of those confused by this downward trend is the President of Association of Bureau De Change Operators of Nigeria, ABCON, Aminu Gwadabe.
Gwadabe told newsmen on Tuesday in Lagos that while the increase in the weekly volume of foreign exchange offered to BDCs saw a reduction in the exchange rate gap; it is surprising that the gains of the injection of over 1.5 billion dollars by the CBN did not last more than two weeks.
"The naira witnessed another somersault to a new height of 420 Naira to the dollar, in spite of the liquidity boost to the banking sector,’’ he said.
Gwadabe said all this is happening at a time when the banks are returning most of their purchases on the premises of poor customer patronage and resistance from some market forces.
According to Nairametrcis, the banks’ FOREX hoard also includes cash in domiciliary accounts.
"Incidentally, the parallel market is running wild with the exchange rate trading at 410 Naira per dollar at parallel market.
"Indications suggest the black market could further weaken now that banks are awash with cash. The reverse theory is that the more liquidity banks have, the higher the price it commands at the black market.
"One of the reasons why the exchange rate appreciated in March was due to panic selling by forex speculators.
"The fear was that FOREX sales by the CBN to commercial banks could extinguish demand in the black market thus creating a disincentive to keep supply going.
"However, now that banks have so much FOREX in their vault with fewer than expected demand, some of that cash will find its way to the black market spurting demand as well as price", an official of Nairametrics explained.