These are not interesting times for the
naira, which entered a free-fall mode on Monday following the
postponement of the national elections by six weeks by the Independent
National Electoral Commission on Saturday.
The currency on Tuesday tumbled to a new
record low of 200 against the United States dollar at the interbank
segment of the foreign exchange market following the postponement of the
elections from February 14 and 28 to March 28 and April 11 as local and
foreign investors continued to be apprehensive about the country’s
economy.
The naira had fallen to 196 against the greenback on Monday.
According to analysts and foreign
exchange dealers, the poll delay has created panic among investors,
leading to heavy demand for the greenback as investors move their funds
to dollars as the fate of the local currency hangs in the balance.
It was further learnt that local
investors and businessmen, who had obligations in dollars, had stated
stockpiling the US currency for fears that the current trend might force
the Central Bank of Nigeria to devalue the currency very soon.
“The postponement of the elections is
responsible for the fall in the naira. The fear that the elections may
not hold at all or turn violent is making most investors and other
people to move their assets into dollars, thus increasing the demand for
foreign exchange and putting pressure on the naira,” the Head,
Investment Research, BGL Plc, Mr. Femi Ademola, said.
“The current trend is also making
investors who have obligations to settle in dollars to take position for
fear that the naira may go up or that the CBN may be forced to devalue
it soon,” a foreign exchange dealer, who chose to speak under the
condition of anonymity, said.
Analysts believe the naira may hit 230 or more against the dollar at the parallel market if the current trend continues.
Although the dollar sold for N210 at the
street market on Tuesday, the national currency is expected to crash
further at the black market if the current trend at the interbank market
is sustained.
According to foreign exchange dealers,
there is scarcity of dollars at the interbank market currently and this
is making the rate to continue to go up.
The CBN needs to sell more dollars at the
interbank market in order to calm the situation, according to the Head,
Research and Investment Advisory, Sterling Capital Limited, Mr. Sewa
Wusu.
He said increased margin between the
official and interbank market rates might make the banks and dealers to
engage in round-tripping and speculation against the naira.
“The naira is being affected by the
uncertainty in the political atmosphere and its resultant effects on the
economy. The current fall in the naira is a fallout of the postponement
of the elections. The CBN may need to look at some of its recent
policies in the foreign exchange mark with a view to addressing this
current situation,” Wusu said.
The CBN explained that the foreign
exchange market was understandably nervous after the decision to
postpone elections, but said it was nothing to worry about.
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