Lasts information from the financial markets indicate that in the last thirty days or so, the Nigerian currency has made tremendous recovery leading to perhaps the steepest gains of the naira in a generation. March appears to be good for the economy which slid into recession in 2016 with continuous negative growth recorded in virtually all sectors. To make matters worse, the trigger for the recession could be many things but most prominent was major cut in oil output occasioned by activities of Niger Delta militants. To make matters worse, international oil prices plummeted by as much as $90 per barrel.
With lower production capacity and cheap prices, coupled with what analysts called wrong choices by the new administration in 2015, the dollar was the first victim. Simply put, there wasn’t enough to go round. And as the law of demand and supply entails, when there is low supply, prices will go up because many hands will pursue the little dollars available. Many goods were prevented from entering Nigeria. Yet the little dollar we earned could not go round and the biting scarcity resulted in inflation, low production and capital flight. Portfolio investors vamoosed from these paths. And two consecutive quarters of negative growth meant the recession was inevitable.
However, analysts were hopeful that as price of crude began to improve, Nigeria would once again be saturated with dollars. Today, it sells at $60 from a low of $25 per barrel. What’s more, production capacity has ratcheted from 600, 000 barrels a day to around 2 million. The liquidity in the forex market led to the Central Bank of Nigeria, CBN to directly intervene. This intervention of the Central Bank of Nigeria (CBN) through increase in supply of foreign exchange for some invisible items lifted the value of the Naira in the parallel market.
It is further said the effect of the appreciation in the value of the Naira at the parallel market may reflect on the prices of commodities from sometime in April 2017.
Also, a financial expert, FSDH Research disclosed that its model indicates that the price movements in the consumer goods and services in February 2017 would increase the Composite Consumer Price Index (CCPI) to 217.41 points, representing a month-on-month increase of 0.78 per cent.
Hear them, “we estimate that the increase in the CCPI in February will produce an inflation rate of 16.95 per cent lower than the 18.72 per cent because of the sharp increase in the CCPI in February 2016,” FSDH Research said in the report.
FSDH Research said its analysis indicated that the Naira lost marginally by 0.08 per cent at the inter-bank market to close at $/N305.50k while it gained 11.94 percent at the parallel market to close at $/N448 at the end of February. Today naira exchanges at N370-80 in the parallel market which is generally called the black market. This is another steep decline for the dollar, which traded at N530 to a dollar just middle of February, 2017. So far, the CBN has pumped in over $1 billion in the market. What is more, banks are now primary and secondary sources of getting forex.
For us, it appears the depreciation of the naira against foreign currencies were orchestrated by Shylock forex dealers who got excited with speculative trading. At a point, Nigerians thought the naira will depreciate until it hits N1, 000. However, the rally has been massive and unexpected. Because of the nature of intervention, it seems the currency will continue its upward spring. However, experts have warned that this intervention is not sustainable. That CBN must design smart ways of not just sustaining this level of injection but make it permanent. Apart from this, more funds must be pumped in to maintain the rise.
We also hope that prices of goods and services which went through the roof- top over the last several months on account of dollar scarcity must begin to go down. That is the only way the masses will appreciate the massive turnaround of our currency. Going forward, government must not let everything be determined by market forces, especially when these forces are no longer left to cause disharmony on account of hardship occasioned by scarcity of dollar.
We commend the CBN and the Niger Delta community for holding the peace while Nigeria recovers. The onus is now on government to fulfill its promises to the delta communities. Naira shall be strong again.