The naira appreciated against the dollar on Friday, March 13, 2020, after days of panic buying amid speculations that the Nigerian central bank may devalue the local currency.
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 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 has 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 a 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 were inappropriate, saying the time was not ripe for such an intervention.
“The Central Bank of Nigeria wishes to note with displeasure, the rumors 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 rumors are false, unwarranted and calculated to serve their dubious and selfish ends,” 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 Nigerian currency has witnessed relative stability. Earlier in 2016, the Nigerian economy slipped into recession amid a 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.