Speculators Drive Naira Volatility in the Forex Market


The value of the naira has seen volatility over the past three weeks which has seen the local currency drop from 660 naira to 730 naira to the dollar within days. In the second week, it appreciated and sold at 600 naira to the dollar, before stabilizing last week at 675 naira.

Volatility in the parallel market had erupted after the last meeting of the Monetary Policy Committee in July, where the Governor of the Central Bank of Nigeria, Godwin Emefiele, was misquoted as saying that the apex bank would sanction anyone who exchanged naira for dollars.

However, following clarification from the CBN and assurances that the apex bank was not considering another devaluation in the near term, the value of the naira firmed to 680 naira to the dollar. My findings also showed that agents of the Economic and Financial Crimes Commission (EFCC) stormed the hive of money changers in Lagos, in an effort to stem the activities of speculators.

The move had seen the value of the naira appreciate to N600 the previous week before falling back to sell at N675 like last week on Friday.

At the official end of the market, the value of the naira had depreciated from N415 to N430 before settling at N429 per dollar at the end of last week. The CBN had continued to use its monetary instruments to dampen the strong demand for naira in the official market.

Emefiele had noted that “once we see that there is excess liquidity, we will continue to use our discretionary powers to mop up that liquidity into bank vaults so that it does not get involved in speculative activities. with those who want to speculate with the currency.”

Head of Consulting at Agusto Consulting, Mr Jimi Ogbobine said: “The recent jump we are seeing is basically the result of a supply crisis in the foreign exchange market. The foundation of all of this is demand versus supply and when demand outweighs supply you will see this type of currency depreciation.

“If the central bank was able to meet the demand for foreign currency, we would not see this type of price distortion. On the one hand, Nigeria is not able to meet the supply of foreign currency and the other, we are trying to restrict and restrict demand, which means that a number of legitimate demands for currencies are now being diverted to the parallel market.

“So while the official market seems relatively quiet, the reality of the supply shortage plays out in the parallel market where more legitimate forex demand is diverted because the official market is unable to demand.”


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