The naira volatility continued almost throughout last year in both the parallel and interbank markets. At the last trading day for the year last Thursday, the naira crashed further against the dollar while the stock index rose.
Naira closed on the interbank market at 199.50 to the dollar on Thursday, compared with 181.50 to the dollar a year ago, down 9.91 per cent at the official window. On the parallel market, the naira traded at 266 to the dollar, weaker by 39.26 per cent from 191 to the dollar at the close of last year.
The naira has continued to come under pressure against the dollar, as Brent crude price continues to decline. The oil price declined to $35 per barrel on December 11, its lowest price since February 2009, before increasing to $38.45pb on December 15 and closed the year around $37pb. This has adversely affected almost all indicators in the economy including the naira.
The stock market rose 3.11 per cent for the day. But it ended down 17.35 per cent for last year. For the naira, it has been a tough road to survival. At the parallel market, the local currency depreciated by 8.44 per cent to N270/ dollar on the 16th of December, touching a new all time low.
At the interbank market, the naira remained relatively stable and appreciated marginally by 0.53 per cent to N197.49/ dollar. The external reserves level declined during the review period by 2.25 per cent ($680 million) to $29.48 billion as at December 15.
Managing Director, Financial Derivatives Limited, Bismarck Rewane, said for the sake of the naira, the Central Bank of Nigeria (CBN) has continued to checkmate liquidity needs in the economy through various monetary measures like the weekly sale of dollars to BDCs, Open Market Operation (OMO), the Monetary Policy rate (MPR), Net Open Position (NOP) and most recently the Cash Reserve Ratio (CRR).
Rewane said despite these measures to reduce pressure on the currency, it has continued to come under severe pressure from internal and external factors.
Other economists believe the incorporation of a long-term diversified strategy in fiscal policy is required to deliver the cushioning support for shocks in various segments of the economy.
For them, the persistent pressure on the naira could have been minimized if a counter cyclical fiscal policy is developed, as the CBN cannot continue to defend the naira with foreign reserves. To reduce this pressure, an inward looking policy (tax incentives, infrastructure development and production subsidy) should be emphasized to reduce the dependence on imported goods.
Asides from oil receipts, the development of the Agricultural sector will in the short term reduce the foreign exchange burden of food imports and over the long term enhance foreign receipts if its comparative advantage in the sector is efficiently deployed.
The CBN had pegged the naira exchange rate at 198 to the dollar in February and scrapped a two-way interbank quote as global oil prices fell, to conserve foreign exchange reserves.
Also in June, the regulator introduced more foreign exchange limits, excluding about 41 items from access to foreign exchange at the official window to further reduce pressure on available dollars.
