The Nigerian Naira, yesterday could not sustain the gains recorded on Wednesday, as it depreciated against the US dollar in the parallel market, closing at N222 to a dollar.
This represents a depreciation of N7 from Wednesday when a dollar exchanged for N215 in Lagos and Kano, and N220 to a dollar in Abuja.
Also, the Central Bank of Nigeria, CBN, yesterday directed that banks should pay for their dollar purchases 48 hours in advance.
Sources from the Bureaux De Changes (BDCs) said that the gains recorded on Wednesday could not be sustained yesterday due to the fact that the dollar sold to them by the CBN was bought by people that felt that the naira would fall as the CBN may not be able to sustain the sale of more dollar to the parallel market.
Meanwhile, CBN has directed commercial banks to pay for their dollar purchases 48 hours in advance, after banning them from accepting foreign currency cash deposits to curb dollar demand and stem illicit financial flows.
Reacting to the *development, BDC operators said banks would struggle to buy dollar on behalf of customers, while the ban on dollar cash deposits would stem speculation.
The CBN in June curbed access to the interbank currency market to preserve its foreign reserves. The move led to the diversion of dollar demand to the black market, weakening the local currency.
“We are now required to deposit the naira equivalent of our total forex bids to the central bank 48
The measures led to a sharp increase in interest rates on the interbank market, traders said.
“The new measure has taken out some huge naira liquidity in the market and putting pressure on the cost of funds among banks,” one dealer said.
The overnight lending rate jumped to 50 percent on Thursday from 12 percent the previous day, amid low liquidity as some banks scrambled to stock up on the naira to back up their forex demand with the central bank.
Ugo Okoroafor, communications adviser to the CBN Governor had explained that the ban on dollar cash deposits with commercial banks was aimed at curbing the “increasing dollarisation of the economy.”
Meanwhile, on Wednesday , it was gathered that the CBN issued a circular to sell additional $30,000 to all licensed bureaux de change (BDCs) in the country on Friday, apart from the weekly sale of $30,000 that the apex banks normally makes to each BDC.
Earlier in the day on Wednesday, naira exchanged for as high as 235 to a dollar, but a parallel market source noted that the news of the CBN circular prompted various firms to hurriedly sell off the dollars in their possession leading to increase in supply of dollars to the market and thus crashing the exchange rate.
The hurried sale is in anticipation that the market would be flooded by dollars when the additional sale is made by the apex bank on Friday. The official exchange rate remains pegged by CBN at N197 to a dollar.
Investigations on Tuesday had revealed that the naira depreciation was as a result of panic buying of the dollar in the hope that it would further depreciate.
Sources said that there was hoarding of foreign currency going on at the unofficial market. They said that the appreciation of the naira last week was temporary and that the exchange rate was most likely to return to its previous level.
The naira had last week appreciated by N35 from N245 per dollar to N210, due to excess dollars in the market, occasioned by refusal of banks to allow foreign currency deposits into domiciliary accounts.