Following the 17 per cent MoM decline in I&E turnover, the naira depreciated by N3.95 or 0.9 per cent during the month as the indicative exchange rate rose to N429 per dollar on July 30th from N425.05 per dollar at the end of June.
Similarly, the naira depreciated by N95 or 15.4 per cent in the parallel market during the month as the exchange rose sharply to N710 per dollar at the end of July from N615 per dollar at the end of June.
However, the naira depreciated in the parallel market by N150 as the exchange rate rose to N710 per dollar on July 30th, 2022 from N560 per dollar on the 31st of December 2021.
Consequently, the gap (premium) between the official exchange rate and the parallel market exchange rate widened to N281 or 65.5% per dollar at the end of July from N189.95 or 45 percent at the end of June.
In their recommendations on measures that can be urgently deployed to halt the downward trend of the nation’s currency, investment analysts and forex dealers who spoke to Vanguard said that the CBN needs to intervene in the forex market, remove some items from the 43 items on the forex restriction list as well as harmonize the exchange rates.
While affirming that the continued slide in the fortunes of the naira is rooted in factors that can only be addressed with long-term measures, they affirmed that the three measures listed above can be deployed in the short term and will go a long way in calming the current demand pressure in the forex market.
In this regard, Peter Elege, Chief Executive Officer, PFI Capital, said, “Policy options the government should aggressively pursue to bring respite to the depreciation of the exchange rate include reduction or possible removal of fuel subsidy, curtailing crude oil theft and harmonization of the various exchange rates to prevent FX racketeering”
“Apart from dipping into reserves and ramping up its interventions to support the currency, I’m not convinced there is much the CBN can do to stop the rapid decline of the naira over the next two weeks”, said Tunde Abidoye, Head, Equity Research.
“As with any currency, the value of the naira primarily depends on supply and demand factors. Although administrative measures such as fx restriction on certain items can be utilised to temporarily stop the slide, the primary remedy still resides with the amount of forex liquidity in the system.
“What we have seen in recent times is a classic case of very low liquidity in the fx market, mainly due to several factors including the low level of export earnings, and increased demand from the political class as the election cycle gradually winds down.”
On the long-term measures needed to help the naira, Abioye said: “The nation needs to start seriously considering medium- to long-term solutions, which would mean creating an environment – i.e. improving electricity, infrastructure – that encourages export diversification, especially for enterprises that are export-led in manufacturing, commodities, and agro-processing, among other industries. Services industries including health, education, and information technology must also be taken into consideration.”
According to an Asset Management Company Chief Executive who formerly headed the forex dealing department of a Tier-1 bank, the situation, though bad, is not completely hopeless.
Speaking on condition of anonymity, he said that a very strongly worded statement by the CBN Governor assuring the public of the resolve of the apex bank to defend the naira while warning against speculation will go a long way in calming the market.
