The naira has fallen further against the dollar to a new low of N177.45, bringing the total value loss by the local currency this year to 10.5 per cent.
The national currency has been under persistent pressure since June when the global oil prices started crashing.
It, however, began a steep and consecutive fall 10 days ago.
The naira on Friday shed 0.76 per cent to close at the N177.45 against the greenback, despite the Central Bank of Nigeria’s intervention for a fifth day with dollar sales to prop up the currency.
According to foreign exchange dealers, the development forced the CBN to ask 21 commercial banks to bid for $2m each.
The central bank has been selling between $150m and $200m in each intervention, causing huge depletion in nation’s external reserves.
Meanwhile, analysts expect devaluation of the naira as the Monetary Policy Committee begins its two-day meeting today.
Analysts at BGL said, “We opined that giving the naira exchange rate a breather along the line of wider acceptable volatility band and/or official shifting of the midpoint to a higher level appears to be the most viable option alongside some semblance of further tightening via possible increase in private sector Cash Reserves Ratio.”
The national currency closed at N176.10 on Thursday. It had sold for N169 against the dollar last week before crashing to N171, N172 and N174 on Monday Tuesday and Wednesday respectively.
Foreign investors have increased the pace of outflows from Nigerian assets since August, selling out of the equity and debt markets as the price of Brent crude, the benchmark against which Nigeria’s oil is sold, dropped. Investors pulled out N101.2bn ($583.6m) from the stock market in October, according to reports.
Dealers said the demand for dollars was mainly from importers buying foreign-made consumer goods and electronics ahead of the Christmas holiday. This, they said, was putting pressure on the naira.
Beyond the demand for dollars by importers however, falling global oil prices and the uncertain outlook for the naira have sparked off panic buying of the greenback by investors.
Analysts said that the demand for the dollar had been growing while the supply was dropping.
Investors and importers, it was learnt, had also brought forward their dollar obligations as the perceived risks of the nation’s social political and economic environment increased.
Some industry analysts are however optimistic that the naira will close the year moderately at about N170 at the interbank market.
The naira had fallen to an eight-month low of 165.55 against the dollar in October.
As of October, the national currency had lost 4.1 per cent against the dollar.
Like other analysts, the Chief Executive Officer, Eczellon Capital Limited, an investment bank and research firm, Mr. Diekola Onaolapo, linked the current naira woes to series of economic challenges facing the country.
He identified the major challenge facing the economy as the fall in the international price of crude oil.
The central bank has been defending the naira with the country’s reserves.
He said since the main foreign exchange earner for the country was crude oil, the CBN’s ability to defend the currency in a sustainable manner had been weakened.
The CBN has spent a daily average of about $27m to defend the naira, effecting a decline of about 16 per cent in the country’s liquid reserves, according to Onaolapo
This, he said, was estimated to be a reduction of about $5.8bn in the external reserves this year, adding that “the perpetual defence of the local currency in an economic environment such as the one the country is in, is unsustainable,”
He further listed other factors fuelling the continued fall of the naira as the termination of the Quantitative Easing programme by the United States and the perceived socio-political issues in the country.
The expert said that “regarding the outlook on the naira, there are not many options available to the CBN as the external pressures on the local currencies are beyond the control of CBN
“Having said that, the option of devaluation of the naira is not pretty, however, a mild, mini or indirect devaluation may be on the table when the Monetary Policy Committee meets next week. Also, a consideration of increase of bench mark interest rate (Monetary Policy Rate) may be considered.
“In the short to medium term, the new equilibrium value of the Naira may be low until a longer term wider economic balancing policy is enacted, beyond the simple defense of Naira by the CBN, with the country’s reserves.”