NIGERIA’S central bank needs to address the supply side of the market by allowing oil companies and banks to sell dollars to Bureau de Change operators to ease pressure on the market, says President of the Association of Bureau de Change Operators of Nigeria, Aminu Gwadabe.
In the last week, the naira has lost about 15 per cent of its value in the parallel market, sliding to N385 to the dollar; leaving investors wondering what options can be explored by the central bank to halt the free fall.
Exploring options for Nigeria’s central bank to halt currency slide
Over the last week, the naira has lost 15 per cent of its value in the parallel market, sliding to N385 to the dollar on Friday. The sharp decline reflects a growing shortage of US dollars to fund imports and other needs in Africa’s largest economy.
“What we are experiencing now is beyond a simple forex (FX) distortion or spike in exchange rate, what I see happening right now in the market is what I term a currency crisis,” said Gwadabe.
He adds: “If you look at the demand pool of the FX in the market, it clearly signifies the level of unearned income in the economy – the solution is beyond rationing strategy – whereby we are rationing the limited we have, we have seen overtime has not provided immediate solution.”
The decline reflects a growing shortage of US dollars to fund imports and other needs in Africa’s biggest economy as oil prices slump.
“It is a major challenge and it’s unfortunate that we’re going through this right now, the Naira has fallen in the black market, so in the parallel market by almost 40 per cent this month, I don’t think that is sustainable,” said Tosin Osunkoya, Head Trading at Rand Merchant Bank.
Osunkoya expects the central bank to mirror Venezuela’s actions where it made a two-tier market, one.
“They now have the one market where you have some items being sold in that market but they still had to devalue.”
“My proposition will be, devalue the naira by maybe 25 per cent in that market, then the second market will be allowed to free float – that market you ally the FPIs and the FDIs (foreign portfolio investments and foreign direct investments) to come into the market and meet certain demand.”
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