Tuesday, April 28, 2020 /08:31
PM / by Tope Alake of Bloomberg / Header Image Credit: Bloomberg
The Nigerian naira's plunge in the unofficial
foreign-exchange market is an indication the central bank may have to weaken
the official rate further after last month's devaluation.
The Central Bank of Nigeria moved to merge the two
rates when it devalued the naira official rate to 360 per dollar from 307 naira
and moved the rate at which investors and exporters could purchase the greenback
to 380 naira from 366 naira on March 21.
The 4% devaluation was far less than other commodity
producers. Russia's ruble is down by 17% and Colombia's peso by 19% since the
beginning of this year. Crude accounts for 90% of foreign-exchange earnings and
reserves are down 12% since January to $33.6 billion.
One dollar has bought 450 naira in the parallel market
since Friday, according to the website abokifx.com, a 14% spread from the
interbank rate, which weakened to 387.48 naira per dollar as of 10:46 a.m.
local time on Tuesday. Twelve-month naira forwards were trading at 509.90 naira
per dollar as of 10:46 a.m. suggesting investors see the currency falling to
around that level in a year.
Central Bank of Nigeria spokesman Isaac Okorafor
didn't reply to a text message seeking comment.
Retail investors are trying to diversify their
portfolios by shifting to foreign-currency assets, according to Omotola
Abimbola, an analyst at Chapel Hill Denham in Lagos.
"For us to see to improved convergence in the rates,
we need to see the central bank stepping into the foreign-exchange market again
to begin intervention sales," Abimbola said.
The investors' and exporters' trading window, which
was introduced in 2017 to attract capital inflows by offering investors a
weaker and market-determined naira rate, has experienced a shortage of dollars
since the central stopped its periodic interventions to sell foreign exchange in
March, according to Stanbic IBTC and Rand Merchant Bank.
"Dollar supply remains thin as foreign investors
continue to stay on the sidelines amid weak fundamentals and oil price
volatility," Rand Merchant Bank said in note to clients on Thursday. Nigeria's
economy, which has been in a four-week lockdown to curb the coronavirus
pandemic, may contract 3.4% this year, according to the International Monetary
Fund.
"We foresee further pressure on the naira as a result
of declining export revenue combined with deepening economic fallout from the
coronavirus," AZA analysts Murega Mungai and Terry Karanja said in a note on
Monday. "The pursuit of dollars is exacerbated by demand from foreign investors
unable to repatriate funds."
Credit: The post Weaker
Naira Looms as Nigerian Black-Market Rate Plunges first appeared in Bloomberg on April
27, 2020
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