The naira sustained its decline on the parallel market as it slipped to N445 to the dollar yesterday, lower than the N440 to the dollar it closed on Friday as pressure and activities of speculators continued to hurt the nation’s currency.
But on the interbank FX market, the spot rate of the naira depreciated marginally to N308 to the dollar, as against the N307.79 to the dollar it closed last Friday.
The President, Association of Bureau De Change Operators of Nigeria (ABCON), Mr. Aminu Gwadabe, argued that the current rate of the naira on the parallel market was not a true reflection of the value of the currency. He also attributed the development to the activities of speculators.
According to him, the situation in the parallel market was being driven by speculators taking advantage of the poor implementation of the Central Bank of Nigeria (CBN) policy requiring banks to sell dollars to bureau de change (BDC) operators.
Some currency traders also said the demand from parents buying dollars to pay school fees abroad was exerting pressure on the FX market.
To analysts at CSL Stockbrokers Limited, the effects of low oil prices and production disruptions are having significant impact on dollar receipts by the country.
“Looking more closely at how the two are working in tandem will provide greater insight into dollar inflows into the country on a daily basis and what this means for dollar liquidity in the market. By multiplying daily production data by average crude oil prices, we derive a basic idea on the amount of hard currency flowing into the economy on a daily basis from the oil sector.
“For example, in August, OPEC reports that average daily production was 1.4 million barrels while the Brent crude prices averaged $47/bbl during the month. We can therefore roughly calculate that the value of Nigerian production was $67.7m per day in August on average.
“It would be too simplistic to use this as the amount of oil dollars flowing into the economy (because actual prices are based on pre-agreed contracts rather than spot prices and not all revenues will flow back into Nigeria) but we can get an idea of the trajectory of oil dollar flows and their levels relative to history.
“Many observers are questioning why foreign investors have not returned to the market in droves. One likely explanation is that the low value of oil production means that liquidity on the interbank market remains low and foreign investors remain fearful that liquidity will not be available when they decide to exit the market,” Lagos-based CSL Stockbrokers Limited added in a note.