Naira yesterday exchanged for N370 to dollar at black market but many buyers were cautious of staking their fund at such rates.
It was the local currency’s weakest position against the greenback since August, last year.
But there are plans for a $90 million inflow through International Money Transfer Operators (IMTOs) to the bureaux de change (BDCs) to lift liquidity levels in the market.
The weakening of the naira at the parallel market has been linked to drop in crude oil prices due to oversupply.
The opening up of political campaigns for parties ahead of the 2019 general elections by Independent National Electoral Commission (INEC) has also affected the local currency’s position as campaign spending rises. These occurrences are deterring foreign investors from bringing in dollars, traders claimed.
Speaking on the development, Association of Bureaux De Change Operators of Nigeria (ABCON) President Aminu Gwadabe attributed the rate to speculation.
He said: “Our checks showed that buyers were not staking their money at such rate because they saw it as speculative. The expected inflow of about $90 million through International Money Transfer Operators (IMTOs) is expected to bring stability to the naira.”
Gwadabe also attributed the currency’s weakening as handiwork of speculators. Traders alleged that some black market outlets were hoarding dollars, fearing a recent sharp fall in oil prices could lead to a shortage of the dollar.
Global prices of oil have dropped more than 20 per cent this month. Traders now fear that Central Bank of Nigeria (CBN) may not have enough reserves to defend the currency against a possible further weakening of oil prices as foreign investors have been pulling money out of Nigerian assets.
“There’s no new investment coming in and oil prices have been dropping so investors are watching while some are exiting,” one trader told Reuters.
CBN has been using up foreign exchange reserves to keep the naira stable, spending $2.2 billion in October to prop up the currency as foreign investors have also left the market in favour of rising interest rates in developed economies.
A CBN data showed foreign reserves stood at $41.9 billion as of November 27, down 12.3 per cent from a peak of $47.8 billion reached in June.
Last week, external reserves dropped to its eight-month low after shedding 27 basis points week-on-week to settle at $41.5 billion on November 21. The currency reserves are down 13.1 per cent June 2018 till date, falling from a high of $47.8 billion.
Investors have also been pulling out funds from equities. The benchmark stock index fell 1.33 per cent to 30,611 points.
Naira also weakened on the over-the-counter market where it is traded by banks. But naira has remained stable at the official market, exchanging at N306.30 to dollar.
CBN has kept the official rate stable at N306.30 for over a year by frequently intervening in the market.
Analysts said that dollar shortages could worsen, as investors close their books for the year unless CBN increases its intervention in the foreign exchange market. CBN has been raising treasury yields to lure offshore funds.
CBN sold a total of $210 million at various market segments, including $100 million sold at Wholesale segment, $55 million at Small and Medium Enterprises segment and another $55 million offered at the invisible segment (tuition fees, medical payments as well as Personal Travel Allowances and Business Travel Allowances).