The naira held firm against the dollar at the weekend, trading at N606/$1 at the parallel market as buying pressure wanes.
The local currency, which exchanged at N609/$1 at the parallel market a week ago, is making gradual comeback after demand declined and more greenback holders convert to naira.
“As political campaigning continues, we expect the naira to appreciate in coming weeks as political dollars gradually get converted back to local currency,” Forex Analyst at AXA Finance, Ikenga Kalu stated in email to investors.
The drop is dollar demand led to appreciation of the naira, which closed at N609/$1 at the parallel market and N416.36/$1 at the official market.
Also, a Lagos-based Bureaux De Change (BDC) operator Abudul Hassan, said the parallel market has seen a rapid increase in the number of walk-in-customers exchanging dollars for naira.
“The volume of dollars purchased from walk-in- customers peaked last week after the party primaries. We expect the naira to continue its recovery in the next few weeks as dollar liquidity in the parallel market rises,” he said.
Kalu said he expects the naira to sustain recovery at the official and parallel markets as huge dollar spendings find their way to the parallel market, and reduce pressure in the official markets.
“We expect to see further gains for the naira in the weeks ahead as political dollars circulating in the country get converted into local currency,” he said.
Other analysts said the surging price of oil—Nigeria’s biggest export earner—has less effect nowadays in the parallel market since the Central Bank of Nigeria (CBN) cut off intervention in the unofficial market.
For them, electioneering for next year’s general elections would further increase foreign portfolio outflows and cause Foreign Portfolio Investors (FPIs) to remain on the sidelines.
They also listed other factors expected to cause further outflow to include rate hikes and capital controls by the monetary authorities.
As part of its longer term FX strategy, the CBN announced a rebate scheme to raise $200 billion in earnings from non-oil proceeds over the next three-to-five years by incentivising exporters to repatriate and then sell dollars into the local market.
Also, Nigeria’s annual inflation rate surged to an 11-month high of 17.71 per cent in May from 16.82 per cent in April, driven by rising food and energy prices.
The Federal Government has complained that demand for imported frozen fish is straining the nation’s foreign exchange reserves, with Nigeria importing 2.4 million tonnes of frozen fish a year to make up for the shortfall in domestic supply.