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The naira dipped further against the United States dollar on the
interbank market on Wednesday after the Central Bank failed to meet all the
demand for dollar at its bi-weekly forex auction.

It fell to 154.36 to the dollar from 154.20 at the Interbank
market and to 157 to a dollar at the black market.

Enquiries reveal that the Central Bank could not meet up with
the demand for dollars at the bi-weekly foreign exchange auction as it sold
$300 million at 150.79 to the dollar, short of the $370.67 million demanded and
$350 million sold at 150.68 at Monday’s auction.

Election induced fall

Traders say the inability of the regulatory body to meet up with
demand and the forthcoming elections may have accounted for the gradual fall.

“We started noticing this fall since last week, that it has been
dropping and it continued this week again,” Musa Abdulrahman, a Bureau de
Change operator in Ikeja said.

“I cannot say this is the reason, but I know that the Central
Bank has not been meeting the demand for dollars and then may be politicians
and the elections that is approaching is also adding to this,” he added.

The naira has been gradually depreciating against the dollar.
Experts say that this may be influenced by the fear of International Monetary
Fund’s (IMF) recent comments about the naira and that the nation’s dwindling
foreign exchange reserves could cause panic buying.

The IMF said last month that speculation against the naira could
“become intense” if the reserve depletion continued, but the apex bank has
since assured that there was no need to panic as the nation’s reserves could
support the country’s import bills.

The Central Bank has, time and again, introduced different forex
mechanisms to liberalise the forex market, reduce currency volatility, and
narrow the gap between the official and parallel market exchange rates.

However, experts are still optimistic that the Central Bank
would be able to sustain a stable exchange rate, especially on the back of
rising oil prices.

“In 2010, the Central Bank, with extensive use of Forex
reserves, managed the exchange rate within a band of +/- 3 per cent and
stabilised the naira around the exchange rate set in the 2010 budget, of
N150/$. Even though oil exports have increased in recent quarters, foreign
reserves fell to $33 billion in December 2010 from $44 billion in December
2009, following a recovery in second half of 2009,” Renaissance Capital, an
investment bank, said.

“The 2011 budget that was read by President Goodluck Jonathan in
December 2010 proposes keeping the exchange rate flat at N150/$1 in 2011. We
expect Forex reserves to grow again starting in 2Q11, which will enable the
Central Bank to sustain a stable exchange rate. In the near term, we expect the
naira to face some downward pressure, though within a narrow range,” the firm
further said.