After a significant plunge in the value of the Nigerian currency immediately the federal government of Nigeria announced the new pump price for fuel last week, the Naira has gained a total point of N21, trading on Wednesday in Lagos, Kano, Port-Harcourt and Abuja at N342 per US Dollar at the parallel market.
Foreign exchange traders in Lagos have linked the slight appreciation in the price ofthe naira, to the money market swift recovery from the shock of the recent hike in the pump price of petrol from N86.50 per litre to N145 per litre, which they said was responsible for the free fall of the local currency at the market.
The Naira began its steady appreciation since the opening of market activities on Monday, gaining 4.4 percent over the dollar at the parallel market, and sustained the rate on Tuesday with a difference of N18 from its highest rate of N363 sold at the weekend.
The nation’s currency, as at last Wednesday fell to N345 from N321 per dollar, and further crashed to as low as N363 on Friday and over the weekend.
This is an indication that the federal government took the decision to increase petrol price to encourage marketers to import the product, a move which has been bemoaned by the forex traders operating in Lagos.They pointed out that the forex scarcity was biting hard at the parallel market.
However, the local currency exchanged at N420 and N380 to pounds sterling and the euro, respectively, at Wednesday’s trading.
Meanwhile, the official Central Bank of Nigeria (CBN) rate remained at N197 to the dollar.
According to Vice-President YemiOsinbajo, the naira is currently trading at N285 to the dollar at the second tier market, which is seen as the semi-official market, and or the commercial banks’ interbank market. That does not operate at the central bank’s official market rate.
While speaking on the need to increase the price of petrol, Osinbajo said: “We realised that we were left with only one option. This was to allow independent marketers and any Nigerian entity to source their own foreign exchange and import fuel.
“We expect that foreign exchange will be sourced at an average of about N285 to the dollar, (current interbank rate).”
Consequently, Central Bank of Nigeria, the apex bank, has made its stance known in a statement issued recently that it has not devalued the naira.
However, the existence of a third-tier foreign exchange market has been strongly linked to the federal government plan not to devalue the nation’s currency, the naira.
Industry experts and financial stakeholders have condemned this foreign exchange regime, which they said further encourages arbitrage and corruption, with customers and oil marketers being able to buy from banks at N285 and sell the same at the parallel market for N363.
Following the recent partial deregulation of the downstream petroleum sub-sector, financial analysts have insisted that the naira has to be devalued, with a flexible foreign exchange policy put in place.
The Managing Director and Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, has continuously said that the official price of the naira is not appropriate, adding that the government has to take a look at that and come up with an exchange rate policy that will take all of this into full consideration.
His words: “I have said it all along that you will need to adopt an exchange rate policy that is flexible. That is what we have to do. You have to adopt an exchange rate policy. But first of all, let us get the fuel situation to settle. Once it settles down, then you can now follow it up with an exchange rate policy, because your largest import is petroleum products, which is about almost $11bn to $12bn a year.
But the decision of the CBN is expected to be disclosed after its monetary policy meeting scheduled to be holds between Monday, May 23, and Tuesday, May 24, 2016.