Naira hits record low of N365/$1 at parallel market
The Nigerian currency, the naira depreciated to a record low of N365 against the United States dollar at the parallel market on Monday as the supply of the greenback waned at the foreign exchange market.
This is as foreign exchange dealers have introduced a maximum resale premium on dollar trades on the interbank market to boost liquidity after the naira touched a record low in thin trade on Friday.
The naira traded without a pre-determined premium – or spread – on Friday, a trader at one of the 15 primary market dealers, told Reuters. Traders under the umbrella of the Financial Market Dealers Association (FMDA) set the spread at a ceiling of 0.50 naira per dollar on Monday, he said.
The naira tumbled 4.3 percent to N295.25 per dollar on Friday before recovering slightly to close at N290.
On Monday the first trade of $780,000 occurred at N292.40 naira to the dollar at 1116 GMT, more than three hours after the market opened. Another trader said activity was slow pending intervention by the central bank.
The naira depreciated in all the segments of the foreign exchange market last week due to shortage of dollars.
Meanwhile the interbank foreign exchange market will experience the maturity of $697 million one-month forwards contract sold by the CBN on Monday June 27th 2016. Last week the naira depreciated in the interbank spot market by Seven percent to N283.37 per dollar from N282.02 per dollar the previous week.
Traders were permitted to set their own spreads on Friday to try to attract liquidity, he said.
With primary dealers required to resell 70 percent of any dollars bought from the central bank on the day of purchase, low turnover on the interbank currency market has the effect of driving down the value of the naira.
Any resale of dollars must be backed by a specific customer order to avoid currency speculation
The central bank said last month when unveiling currency reforms that the naira would trade with no pre-determined spreads.It ditched its 16-month old peg on the naira in June to allow the currency to trade freely on the interbank market but thin liquidity has hampered activity, traders say, leaving the central bank as the main supplier of hard currency.
Other past suppliers of dollars, including oil firms, are now selling part of their hard currency directly to petrol importers under an arrangement with the government, traders say.
The central bank governor flew to Britain and the United States last week to try to lure back investors scared off by the plunge in oil prices and resulting financial turmoil.
Some $697 million the CBN sold in one-month forward contracts fall due later this month, traders said, with contracts for July delivery quoting the naira at N279.
