Egypt is cracking a tough nut that Nigeria is breaking its teeth on. Barely two weeks after devaluing its currency against the dollar, Egypt has now secured $2 billion in financing from international banks, while the first $2.75 billion tranche of an IMF loan worth $12 billion is due Tuesday, Nov.15. Nigeria, on the other hand, is taking its currency market manipulation to new heights as security agencies are now arresting traders who sell their dollar stock above N400/$.
Currency traders say the action is in a bid to forcefully converge the naira’s unofficial rate of N460/$with the artificial rate of N307/$ pegged by the Central Bank at the official market. “Rather than achieve this, it would further dry up dollar liquidity in Nigeria,” a trader told BusinessDay. Nigeria and Egypt are reeling from the crash in oil prices which account for almost 90 percent of dollar earnings. The naira and the Egyptian pound have come under pressure since then, and faced with the inevitability of allowing their currencies weaken, one currency is making faster progress than the other.
“Clearly, the Egyptian pound is making faster progress than the naira,” one currency analyst told BusinessDay Market Intelligence in an interview.
“The evidence is the renewed investor confidence in the market and the convergence between the official and unofficial Egyptian pound/dollar exchange rates. However, the spread between the naira’s official and unofficial rates is widening. And it would get thinner in the near term if Nigeria’s central bank continues to manipulate the market as it is doing now.”
The Egyptian pound pre-devaluation on Nov.4, was exchanging for 8/$ at the official market, while it traded at 18/$ at the parallel market. But the currency has made a rebound after then. The currency was trading at 16.54/$ on the official window, as at 2:00pm in Cairo on Friday, according to Bloomberg data, while the currency exchanged for around 17/$ at the parallel market.
However, the naira’s value at the official window is all but widening compared to the parallel market and the parallel market is increasingly looking like the market to go to gauge the naira’s true value. The naira officially exchanged for N307/$ at the close of market on Friday, and N460/$ at the unofficial market. Although Nigeria devalued the naira in June, the euphoria of that devaluation has faded away as monetary authorities return to an unpopular method of pegging rates.
Nigeria’s central bank has intervened aggressively in the official market to determine the naira’s value but authorities took their damage control outside the official market last week after security operatives raided parallel market operators to influence the rates at which they sold their dollars.