The moves to stabilise the naira through clearance of $7 billion forex forwards backlog and injection of nearly $10 billion foreign capital will not yield substantial results in stabilising naira until they are backed with inflation-arresting policies, analysts have said.
In its monthly market report released at the weekend, analysts at Afrinvest West Africa said it would be helpful to accompany such a move with inflation-arresting policies to present a compelling narrative for the Naira.
“Price pressure persisted as consumer prices rose for the ninth consecutive month. Particularly, headline inflation advanced year-on-year from 25.8 per cent in the prior month to 26.7 per cent, 68 basis points lower than our projection. Pressure points across the food (up 30.6 per cent year-on-year) and core (up 21.8 per cent year-on-year) baskets drove this uptick,” they said.
Continuing, they advised economic managers on way forward. “In our opinion, longer- term strategies should be focused on moving the economy from being hot-money-reliant to Foreign Direct Investment- based,” they said.
The naira at the weekend sustained week-long rally after the Central Bank of Nigeria (CBN) and commercial banks cleared $7 billion forex forward backlog, pending for months.
The local currency, which crossed N1,350/$1 at the parallel market a week ago, strengthened to N1,035/$1, with analysts predicting further firming-up in the weeks ahead.
Managing Director at Afrinvest Research, Abiodun Keripe, said the naira will witness mild succour at both the official and parallel market in November owing to the expectation of improved supply by the CBN as efforts to secure $10 billion funding support reach advanced stages.
Data from FMDQ Exchange showed that at the Investors and Exporters (I&E) window- official market- the local currency also rallied to N776.14/$1 with $99 million transaction volume.
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, said there was need to encourage market participants to source forex from independent windows to boost liquidity.
He called for enabling environment and fair treatment for all the players to achieve exchange rate stability.
He advised the Federal Government should enhance financial intelligence by tracking people with proceeds of corruption to sanitiswe the market.
Gwadabe said many of the people with proceeds from corruption are the ones putting pressure on the forex market through their manipulative actions. “The naira is depreciating not by forces of demand and supply, but by the collective action and impact of the people with illicit funds,” he said.
Managing Director, Forward Marketing Bureau de Change Ltd., which compiles exchange-rate data, Abubakar Mohammed said CBN’s announcement that it cleared the matured foreign-currency contracts for some lenders prompted some speculators to offer their dollars for sale, boosting supply.
The backlog was a significant challenge that the central bank has been “battling with in the last three and four years; there is no way this will not prop up the value of the naira,” he said.
Another BDC operator in central Lagos, ‘Biodun Ganiyu, said the matured foreign-currency forward contracts have for years, hampered dollar inflows as investors fear repatriation of funds on maturity.
