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Home » Why Naira appreciated against US Dollar in the last one week –Chukwu
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Why Naira appreciated against US Dollar in the last one week –Chukwu

Saint AugustineBy Saint AugustineAugust 16, 2015No Comments3 Mins Read
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The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu has given reasons why the Nigeria’s currency, the Naira appreciated against the United States Dollar after months of depreciation.

Speaking with Primetime Reporters in Lagos last week, Chukwu attributed the development to couple of policy actions taken by the apex bank, the Central Bank of Nigeria (CBN) one of which he said was the prohibition of the lodgment of cash dollar into domiciliary account.

He pointed out that with that, there was a lot of cash dollar liquidity adding that the CBN further boosted the dollar liquidity in the system by selling an intervention fund to the operators of Bureau de Change (BDC) twice the previous week and promising that it would also sell twice last week to the BDCs.

”So, what they did was increase the liquidity of cash dollar in the system and then limit the outlets for the usage of cash dollar. That automatically depressed the price of cash dollar in the cash market particularly because a lot of BDCs do not have so much of Naira liquidity. So, they needed to sell off immediately, they collected their money on Wednesday to be able to go and fund their cash on Thursday for Friday bid.

“So, that in effect led to a lot of cash dollar liquidity in the system and also traders who want to sell their cash dollars so that they will be in a position to go and fund their cash dollar on Thursday for Friday bid. Having said that, what also led to the appreciation in the transfer market is because the cash dollar came down, I want to believe that some traders have devised ways of buying all the cash dollars at low prices and going out of the country and lodging them into their offshore account and then transferring them using the inflow as transfer.

“So, in effect, the supply of transfer fund increased at lower cost because such traders could mobilize dollar at lower cost and then send the dollar outside the country and then make the lodgment into their accounts and send the same as money transfer. So because they could buy cheaper, of course, they have to reduce the price so as to free up and then come back and start pulling it out again.

“So, they were obviously looking at their transaction cycle and they were trying to achieve higher turnover with lower margin. So, I think those factors were critical to the appreciation of Naira in the last one week (two weeks)”,he said.

Chukwu however said that he doubt if the Naira rally would be sustainable owing to the fact that the CBN had very limited resources to continue to intervene in the market saying that that was one factor that would hold back and made it impossible for people to see persistent appreciation of Naira.

According to him,” And also, you consider the fact that once the intervention ends, you will see Naira shoot up. We have seen Naira oscillating, it comes down today and as liquidity dries up slightly, it jumps up again. So, I do not know how long it will last but I know for sure that it is not sustainable”.

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Bureau De Change Central Bank of Nigeria Mr. Johnson Chukwu NAira Appreciation
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Saint Augustine
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Saint Augustine is a seasoned freelance journalist and the chief editor of Primetime Reporters.

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