Naira at record clos­ing low as dol­lar short­ages linger

Daily Trust - - FRONT PAGE -

Nige­ria’s naira was stuck at a record clos­ing low of 292.90 to the dol­lar on Wed­nes­day af­ter just one trans­ac­tion was car­ried out, with the sup­ply of dol­lars dry­ing up and no in­ter­ven­tion from the cen­tral bank, said traders.

The naira was un­changed from Tues­day’s close af­ter one trans­ac­tion worth $380,000 was made on Wed­nes­day. That trade was done at 11:50 GMT, 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 hap­pen. Com­mer­cial banks had been quot­ing to trade the dol­lar as low as 295.50 naira on Wed­nes­day.

“Re­cent FX 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, an 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 281 to 285 naira af­ter the cen­tral bank lifted its 16-month old peg of 197 naira to the dol­lar last month.

But lack of liq­uid­ity has curbed ac­tiv­ity, leav­ing the cen­tral bank as the main sup­plier of dol­lars, traders said.

On Mon­day, cur­rency traders in­tro­duced a max­i­mum re­sale pre­mium on dol­lar trade to boost liq­uid­ity af­ter a trans­ac­tion made with­out spread sent the naira tum­bling to a record in­tra-day low.

In­vestors have wel­comed the re­moval of cur­rency con­trols but many were still steer­ing clear un­til Africa’s big­gest econ­omy showed 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, the 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 $579.3m has been sold in fu­tures con­tracts rang­ing be­tween one month and one year. A one-month con­tract for $26.7m due on July 27 was sold at 279 naira.

In non-de­liv­er­able for­ward mar­kets, the onemonth naira-dol­lar for­ward was quoted at 314.50. The one-year con­tract fell as low as 345.13 per dol­lar. ( Reuters)

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