The Nigerian Naira, yesterday, suffered its most steep depreciation in the inter-bank market since the new foreign exchange market commenced, trading at N365.25 per dollar against N314.14, almost 14 per cent drop in one day.
Parallel market rate hovered around N395/USD1, indicating that the huge gap is now narrowing. The steepest single day depreciation before yesterday was recorded shortly after the dropping of Central Bank of Nigeria’s remote rate control which spiked the exchange rate from N281.8 to about N305.5 last month, just 8.4 percent depreciation.
Earlier this month also, another sharp depreciation was recorded when the rate hit N332.1/$1 from N315.4/ $1, which translated to just about 5.02 percent depreciation.
Traders attributed yesterday’s development to a sustained discomfort with continued scarcity of foreign exchange supply from independent sources, a situation which had forced the apex bank to continue its intervention almost on a daily basis since this month.
The development is coming against the backdrop of continued pressure on external reserves which has steadily declined by 2.11 per cent since last month, hitting $25.8 billion mid this week, while traders and foreign investors have expressed fears that the depletion was piling pressure on the exchange rate.
The apex bank had in June, rolled out the new foreign exchange market policy in a bid to liberalise transactions and increase independent supply of forex to the inter-bank market.
CBN had hoped that foreign investors and other independent holders of foreign currencies would respond by bringing their resources to the market. But this did not happen because the prospective suppliers believed the market then was still controlled by the apex bank which kept rates between N280 and N285 per dollar.
A further liberalization one month later still could not attract the suppliers significantly as additional fears of reserve positions hampered positive sentiments.
The adverse trend in the external reserves have been blamed partly on both fiscal policy weaknesses and disruptions in the oil sector arising from militancy in the Niger Delta.
At the backdrop of the fiscal policy weaknesses, President Mohammadu Buhari, said yesterday that Nigeria will need to balance monetary and fiscal policies in order to overcome its worst economic crisis in decades and return to growth.
He did not say what the government intends to do but he pointed out that the CBN was helping the economy with some specific intervention programmes but the country needed to balance monetary and fiscal policies.
Buhari who was speaking while addressing a meeting of African central bank governors in Abuja, said “We fully understand that monetary policy alone is not sufficient to bring about desired economic growth”.