Naira falls further despite CBN intervention

The naira dipped further against the United States dollar on Monday on the Inter bank Foreign Exchange Market in spite of a $207m intervention by the Central bank of Nigeria.

The naira closed at N135.5 per dollar, down from N132.3 last week as banks and other authorised dealers scrambled for the greenback to meet customer obligations in an increasingly tight market.

The naira, which recorded some stability in the last three years, took a dramatic turn by crashing continuously from N120 to almost N140 to the dollar in the past three weeks, fueling speculations that the CBN had deliberately allowed the currency to fall to generate cash to fund the fourth quarter budget, by withholding supplies to the official Wholesale Dutch Auction System.

Within a few days at the official market (WDAS), the naira lost N7 and traded at N127.5 to the dollar, while at the parallel market and bureau de change, it dangled between N137 and N140.

The development prompted the closure of the foreign exchange market for two consecutive days shortly before the Muslim festival of Eid el Kabir.
Analysts attributed the development to the inability of the CBN to make available the market demand of about $2bn, which compelled the banks to source for dollars on their own.

By the end of last week, the naira continued its free fall at the WDAS market. It lost N2.56 to the dollar at N132.56, while also shedding N2 at the inter-market to close at N134.

Informed sources said the crashing naira was a deliberate decision of the Federal Government and the CBN to devalue the currency in order to prevent a derailment of the financial projections for the remainder of 2008 and the 2009 budget projection as a result of the threat being posed by the crashing price of crude oil in the international market.

Already, government revenues dipped by N177bn in November, forcing a drawdown of N106.7bn from the excess crude account to augment funds due for sharing to the three tiers of government.

The continuous decline in oil prices to below $40 at a point, compared with the 2008 budget assumption of $59, had left economic managers in a quandary.
Analysts said CBN was left with no option but to save public finances by “creating naira” through a free fall of the naira.

Source:
The Punch Newspaper
December 16, 2008