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Naira Depreciates Further; Exchanges For N375 To 1$ At The Parallel Market

The naira yesterday suffered heavily at the parallel market depreciating by N7 against the dollar.
Vanguard investigation reveals that the parallel market exchange rate rose from N268 per dollar on Tuesday to N375 per dollar
at the close of business yesterday. The sharp depreciation was
triggered by increased scarcity of the nation’s currency in the
interbank market. The lack of dollar supply in the interbank market was aggravated by lack of intervention dollar sales by the Central Bank of Nigeria (CBN) causing the naira depreciate by 12 in the market in ten days.

 However the naira appreciated yesterday at the interbank spot market with the interbank exchange rate dropping to N294.23 per dollar
from N294.57 on Monday. It was gathered that only one transaction worth
$380,000 was transacted yesterday and it was conducted at 11.50 am more
than three hours after the market opened. The interbank market had seen
just $300,000 traded on Tuesday, again in one transaction. Traders had
expected the central bank to intervene to ease dollar shortages, but that did not materialise. Commercial banks had been quoting to trade the dollar as low as 295.50 naira yesterday. “Recent foreign exchange reforms have been enough to re-open the investment case for Nigeria,
but there is still some uncertainty about the functioning of the
market,” Alan Cameron, economist at Exotix said. “The absence of
volatility at N283/US$ was interpreted as a sign that administrative
controls were still in place; it remains to be seen if those will be
fully removed.”

 Banks had been quoting the dollar
at N281 to N285. But the lack of liquidity has curbed activity, leaving
the central bank as the main supplier of dollars, traders say. On
Monday, currency traders introduced a maximum resale premium on dollar trades to try to boost liquidity after a transaction made without spreads sent the naira
tumbling to a record intra-day low. Investors have welcomed the removal
of currency controls but many are still steering clear until Africa’s
biggest economy shows signs of a concrete recovery. “Most investors
would like to see a more liquid FX market before resuming purchases of
local assets,” said Samir Gadio, head of Africa strategy at Standard
Chartered Bank. “Given the significant discount of naira-settled
futures, a number of offshore financial institutions and hedge funds
could be tempted to get involved in the foreseeable future.”
A total of $579.3 million has been sold in futures contracts ranging
between one month and one year. A one-month contract for $26.7 million
due on July 27 was sold at 279 naira. In non-deliverable forward markets, the one-month naira-dollar forward was quoted at 314.50. The one-year contract fell as low as 345.13 per dollar. On the black market the naira was quoted at 368 on Wednesday.

Source: Vanguard

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