The Naira is currently trading above N200 in most parts of Nigeria and understandably a lot of my readers are wondering why and how? I have decided to respond through this short blog post. Here is what I think
CBN Policies – Last week the CBN issued a new circular restricting the BDC and other authorized dealers from buying dollars at the Interbank. This immediately caused an artificial scarcity as most BDCs did not have dollars to sell and also had very little to buy. The interbank market also spiked as scarcity dealers held back whilst trying to figure out what their next move would be. What happened next was that those who had dollars even saw reasons to hoard it even more speculating that things could get worse. The CBN is basically not interested in defending the naira on behalf of those who buy dollars at the black market or without official documentation.
Demand from Politicians and Others – As the elections draw near, most BDCs and parallel market operators confirm that they have seen a huge surge in demand in dollars from politicians, government officials and the private sector. They claim the uncertainty about who will win is making them sell a lot of their naira denominated assets sharply. They believe now matter the outcome some perceived friends of whoever loses may be victims of witch-hunting and so they are stashing up dollars just to ensure they have options. These guys I hear are ready to pay any amount just to secure the green back. This is actually why you see the high volatility in the price of the dollars with some buying at any price between N200 and N215 depending on who is selling, Politicians are also buying in droves as they seek quicker ways to fund their campaigns.
Demand from traders – Most traders, particularly those who are import goods for sale also contributed to the spike in dollar prices. This is the period when a lot of the make orders as proceeds from Christmas sales fills up and waiting to be deployed for the new year. Unfortunately they were more at the receiving end of the CBN policies. The policy also insist dollar can only be sold to those with approved Letter of Credit. So for those who just prefer to buy at the parallel market, there was not just enough dollars for them to buy instigating a scramble for the few remaining.
The current volatility will ebb and the dollar might go for between N185 – N195. Once the elections are over (particularly presidential) and oil price volatility stabilized the Naira will fall to Under N190 at the parallel market. But for now, things are likely to remain volatile with price swings up and down. If you need forex to pay for any service or good abroad then I suggest you make use of your ATM card (if the other party will accept it) otherwise be ready to pay at a volatile price. No point budgeting in the next two to three weeks as it will be difficult to predict the price or make assumptions on what the price could be.