Politicians’ demand for dollars puts pressure on naira

There are indications that the naira, which hit 208 against the United States dollar on the streets of Lagos on Friday, may drop further as politicians seek more of the greenback to fund campaigns few weeks to the general elections.
The naira had on Friday crashed against the US dollar from 191 to 208 at the parallel market, otherwise known as the black market.

Foreign exchange dealers told our correspondent on Monday that the Central Bank of Nigeria’s stringent requirements for purchasing dollars at the official and interbank segments of the forex market had forced the politicians to take to the Bureaux de Change and street markets in recent times.
At least 60 per cent of the total demand for the dollar at the BDCs and black markets is being fuelled by the politicians who are currently stepping up preparations for the February elections, according to findings.
The CBN had on Friday increased its weekly dollar sale to each of the over 2,500 BDCs in the country from $15,000 to $30,000, over six months after it slashed the figure from $50,000 per week to $15,000.
But forex market officials on Monday said unless the central bank increased the amount of dollar sale to the BDCs, the naira might fall further against the greenback.
The dollar sold for between N207 and N208 on the streets of Lagos and Abuja on Monday. At the interbank market, it closed against the dollar at N191.20.
The Head, Investment and Research, BGL Plc, a research and investment advisory firm, Mr. Femi Ademola, said everything was still tied to the falling oil prices, adding that the CBN’s inability to match the rising demand for the dollar with supply was traceable to the nation’s dwindling forex revenue.
He said a further devaluation of the naira after the elections might be inevitable unless the price of crude oil went up.
Ademola added that unless the price of oil rose, the CBN might be forced to move the official midpoint of the dollar from the current N168 to N200 after the elections.
Already, the CBN, in a bid to mitigate the pressure on the naira, last week stopped banks from selling dollars to the BDCs, while it increased its weekly dollar sale to each of the operators from $15,000 to $30,000.
It also said dollar funds purchased at the interbank and official segments of forex market by the banks must be strictly used for funding Letters of Credit, Bills for Collection and invisible transactions; and stopped dollar sales to other approved buyers.
“The CBN’s decision to increase the dollar sale to the BDCs from $15,000 to $30,000 is commendable but in order to further calm the market and stop volatility of the naira, the central bank needs to increase this amount to at least $50,000 to each operator,” the Acting President, Association of Bureau de Change Operators, Mr. Aminu Gwadabe, told our correspondent on Monday.
He said the central bank needed to meet up with the dollar liquidity demand in the market in order to calm the market fully.
Asked if politicians were fuelling the demand at the street and BDC markets, Gwadabe said, “We cannot rule out the fact that politicians are fuelling the demand at the street market because most of them prefer to provide their gratification during this election period in dollars.”