Nigerians’ stampede for dollars showed no sign of abating on Friday, with the naira falling to another record low even as the central bank announced newly nominated Governor Olayemi Cardoso will take over in an acting capacity.
(Bloomberg) — Nigerians’ stampede for dollars showed no sign of abating on Friday, with the naira falling to another record low even as the central bank announced newly nominated Governor Olayemi Cardoso will take over in an acting capacity.
The currency was being quoted at 992 per dollar by street traders, according to the Forward Marketing Bureau de Change Ltd., which compiles the data. That compares with 900 naira at the start of the month, and is some 30% below its official Thursday close of 772.98 on the FMDQ trading platform. Back in June, the official and parallel-market rates had converged, galvanized by newly elected President Bola Tinubu’s reform pledges.
Nigerian Finance Minister Adebayo Olawale Edun on Thursday blamed the naira’s rout on some $6.8 billion of overdue forward payments owed by the government. “Every effort is being made to bring in the liquidity and deal with that, principally by hopefully paying it down, agreeing with the creditors,” he said in an interview in New York.
Resolving the issue would “pave the way for additional foreign exchange flows” and allow the naira to strengthen, Edun added.
Read More: Nigeria’s Reform Pledge in Disarray as Naira Rout Deepens
For now, however, traders attribute the escalating naira selloff to the central bank’s absence from the market. Authorities have effectively stopped the supply of dollars to the official market this month, they say, forcing buyers to seek greenbacks on the street.
Others are calling for significant policy-tightening that will raise local bond yields and the naira. Charles Robertson, head of macro strategy at FIM Partners in London, noted that one-year naira-denominated bonds yield about 12%, while inflation is more than double that.
“With interest rates where they are there is very little interest to be long naira,” he said. “Confidence would come from hiking rates significantly and at same time draining the market of naira liquidity. Do both of those and show you are serious about stabilizing the currency.”
The problem, though, is that a rate-setting meeting scheduled for Sept. 25-26 has been postponed until further notice, after the acting governor and his four deputies resigned last week. Cardoso and his four deputies assumed their roles in an acting capacity on Friday, though they’ve yet to be confirmed, with Senate hearings expected to begin next week.
Read More: Nigeria’s Cardoso Assumes Duty as Acting Central Bank Governor
“You can argue there has been a vacuum at the central bank leadership level,” said Thys Louw, a portfolio manager at Ninety One UK Ltd. “It’s something Cardoso is going to have to tackle.”
Louw said foreign investors were unlikely to return to Nigeria unless local assets offer higher rewards and until they are convinced of currency stability.
“We see no need to rush into the local bond trade because the cost of not being able to repatriate clients’ capital is just too high,” he said.
–With assistance from Henry Meyer, Ezra Fieser and Emele Onu.
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