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Nigeria’s Naira, Not Yet Uhuru as rate returns to N395/$

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The Naira depreciated further at the black market on Monday despite efforts by the Central Bank of Nigeria, CBN, to boost liquidity in the market.

The CBN has so far pumped about $2.2 billion into the interbank FX market for forward sales (both 30 and 60 days) and retail invisibles in the past six weeks.

The naira devalued to N394 to $1 on the parallel market on Friday, translating to 10 per cent depreciation of what was recorded during the week.

Today the naira lost two points to exchange at N395 to the dollar from the rate recorded on Friday, while the pound sterling and the Euro closed at N480 and N415, respectively.

At the Bureau De Change (BDC) window, the naira was sold for N362 to the dollar, while the Pound Sterling and the Euro closed at N483 and N430, respectively. Naira-Dollar Trading at the interbank market saw the naira closed at N306.3 to the dollar.

Meanwhile, Nigeria’s external reserves dropped to $30.298 billion as at March 30, 2017 following settlement of matured obligations, mainly foreign exchange (FX) forwards, by the Central Bank of Nigeria (CBN).

As a result of the central bank’s decision to enhance FX liquidity in the market last month, which led to significant appreciation in the value of the naira, the CBN had adjusted its FX policy. 

Among the FX measures announced, as part of efforts to further increase the availability of FX to all end-users, the CBN decided to significantly reduce the tenor of its forward sales from the maximum cycle of 180 days to not more than 60 days from the date of transaction.

With this, some of the FX forwards (30 days) started maturing at the end of March 2017 and their settlement were expected to impact negatively on the reserves.

The Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, told THISDAY recently: “We must remember that the FX forward contracts started maturing as from the end of March. Forward contracts are post-dated cheques and when they start maturing is when we would start seeing the effects of the intervention on the reserves.”

But the central bank has remained resolute on its objective as indications emerged at the weekend that it would sustain its intervention in the interbank market. This is in addition to the further increase in the sale of dollars to the Bureaux de Change (BDC) operators from $8,000 to $10, 0000 per week.

The acting Director, Corporate Communications of the CBN, Mr. Isaac Okoroafor, said that the CBN was determined to sustain the provision of liquidity in the foreign exchange market in order to enhance accessibility and affordability for genuine end users.

The CBN over the weekend also warned commercial banks and other dealers to desist from sabotaging the efforts aimed at making life easier for foreign exchange end users.

He urged the CBN to sponsor a bill at the National Assembly so that the lawmakers would pass a law for naira convertibility in West Africa, as part of the solutions to full recovery of the naira.

Gwadabe argued that the naira was currently a means of exchange in about 15 countries in Africa.

According to him, the naira started trading last Monday with a promising outlook for sustained strength against the dollar and other currencies, but it began to fall at the middle of the week.

The association’s president said that the removal of disparity in applicable exchange rates among the BDCs, Travelex and the banks should have strengthened the nation’s currency.

He added: “The CBN’s knack for last minute solution as recent development has shown, accounted for the misfortune of the naira at the foreign exchange market.’’

Gwadabe said the battle for the soul of the naira would be won if the CBN could boost liquidity to the BDCs for the effective unification of rates.”

According to Gwadabe, “It is evident that the injection of liquidity to the interbank market rather than the BDC sub-sector is not effective and transparent for sustained FOREX rate convergence and unification.

“Statistics from the CBN shows that about 20 banks get $80 million weekly for invisible transaction as against the $20 million weekly for over 3,000 CBN licensed BDCs nationwide.

“The CBN should enhance public awareness to guide end users on FOREX availability and applicable exchange rates.

“The CBN should diversify the buffers from oil proceeds to foreign investors’ inflows and Diaspora remittances.’’

Float the Naira

Bismarck Rewane, chief executive officer (CEO) of Financial Derivatives, says the Central Bank of Nigeria (CBN) should also allow the naira depreciate to “maybe 340, maybe 350″ to reflect a real effective exchange rate.

Speaking to Channels Television on Monday, Rewane said the CBN must avoid fixing price, stating categorically that price fixing will not work.

“The central bank can intervene with whatever the resources they have, but cannot begin to fix prices, price control never works,” Rewane said.

Speaking on IMF warning to Nigeria, after the conclusion of the Article IV consultation process, Rewane said “It is important that the central bank now allows the 305 to depreciate more to where the market is, maybe 340, maybe 350 and then allow everybody…what we call a real effective exchange rate”.

“But more importantly is that we cannot be a stop, go economy. We need to take all the steps that are required in terms of appointing boards, making the policies, making sure the budget is passed, making sure the spending…mobilising the contractors, especially power and transport, so that infrastructure spending, which unlock resources will stimulate the economy.”

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