Despite hitting a new low of N535 to dollar at the parallel market on Wednesday, the naira is not expected to depreciate to N600/$, analysts have predicted.
In economic report, Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said the necessary and sufficient conditions for naira stability at the parallel market is a significant increase in forex supply at the official window rather than administrative solutions.
He explained that although the Central Bank of Nigeria (CBN) has already increased dollar supply to commercial banks by 200 per cent, more greenback is needed to stabilise the local currency. He predicted the it was very unlikely that the naira crashes to N600/$.
“We believe that the invisible hand is better than the hidden hand in bringing equilibrium to any market-forex market inclusive,” he said.
He said the International Monetary Fund (IMF) $3.35 billion Special Drawing Rights (SDRs), will provide a 10 per cent cushion to external reserves.
He said the parallel market rate crashed to N526/$ on forex supply shortages even as the apex bank froze the accounts of four fintechs that encourage dollar denominated investments for 180 days.
The Fintech companies are Rise Vest, Bamboo, Chaka and Trove. The apex bank also stopped the forex sales to BDCs and barred Microfinance banks from forex transactions. Increased forex sales to banks for legitimate transactions
At N411.08/$ at the parallel market, Rewane said the naira is overvalued by 27.12 per cent adding that currency convergence will continue around the Investors and Exporters Forex Window.
“A major determinant of the naira value is the balance of trade and current account. The terms of trade improving and balance of trade deficit reducing but the naira is still languishing and plunging,” he stated.
