After days of panic buying amid speculations that the Nigerian central bank may devalue the local currency, the naira appreciated against the dollar on Friday.
The Nigerian currency had lost ground against the dollar earlier in the week, trading between N366 and N368 amidst the slowdown in global demand for oil caused by Covid-19.
Apart from the effect of Covid-19 on the global economy, a breakdown in talks between the Organisation of Petroleum Exporting Countries (OPEC) and its allies led to a freefall earlier in the week, with oil prices crashing to $33.
Nigeria relies heavily on oil to fund its budgetary obligation and fix infrastructure. Consequently, a crash in price and reduction in oil demand have affected the flow of dollars into the economy, resulting in illiquidity and buying pressure in the market.
On Thursday, the naira slipped to over N400 against the dollar, raising fears of further depreciation among Nigerians. Reports said it sold for about N430 in the parallel market.
But on Friday, the naira appreciated amid warning by the Nigerian apex bank that there was no plan to devalue the currency, trading at N375 against the dollar.
The CBN in its warning added that the recent calls for the devaluation of the Naira in response to the current global economic challenge was inappropriate, saying the time was not ripe for such an intervention.
“The Central Bank of Nigeria wishes to note with displeasure, the rumours and speculative activities of unscrupulous players in the foreign exchange market, borne out of the impression that the CBN is on the verge of devaluing the Naira, and triggering panic in the FX Market,” the apex bank said in a statement by its spokesperson, Isaac Okorafor
“These rumours are false, unwarranted and calculated to serve their dubious and selfish ends,” Mr Okorafor added.
The CBN said it has commenced investigations in collaboration with the Nigerian Financial Intelligence Unit (NFIU) and related agencies to uncover the unscrupulous persons and FX dealers “behind the panic call”.
Until the outbreak of coronavirus in recent months, the Nigeria currency has witnessed relative stability.
Earlier in 2016, the Nigerian economy slipped into recession amid crash in oil prices, trade deficit, unrest in the Niger Delta and depleting reserves. There, however, was a coordinated approach by the fiscal and monetary authorities to tackle the crisis and the nation slipped out of recession in the second quarter of 2017.
Until recently, the naira has witnessed relative stability since mid-2017, averaging N360.
Covid-19 and Global Economy
Since the beginning of the coronavirus outbreak in China in December, over 80 countries have reported at least a case of the disease, with devastating effect on the global economy.
On February 27, an Italian businessman who had flown into the country for business tested positive. Thus, Nigeria became one of the six African countries that have reported at least a case of the virus on the continent.
The virus has had negative effect on global demand for oil, with attendant crash in prices. Crude oil prices recorded its biggest single-day drop last Sunday to trade at $33 per barrel.
China, one of the world’s largest importers of crude oil, has had its economy shut down to control the spread of the virus. The development has led to reduction in its demand for crude oil as industries and airlines have stopped operations.
A meeting between OPEC and its allies penultimate Friday ended in a stalemate with OPEC proposing additional production cuts of up to 1.5 million barrels to combat the risk posed to the market by the coronavirus outbreak. Russia, however, declined to agree to the cuts, sending oil prices into a freefall.