Nigeria’s foreign exchange market was tension-soaked yesterday, as the Naira
raced towards N500/USD1. It closed at N490/ USD1 in the parallel market, with
dealers expecting further rise today to hit the dreaded N500 mark.
Surprisingly,
the Naira appreciated significantly to N305/ USD at the official interbank
market same day, although dealers said foreign exchange was not available to
most of the bids.
Meanwhile,
the global investment bank, Morgan Stanley of United States of America, has
warned that its MSCI Nigeria Indexes would be reclassified as Stand-alone next
year, if currency restriction was instituted by the Central Bank of Nigeria,
CBN.
Also the
World Bank said, yesterday, that Nigeria and South Africa would drag down
Africa’s growth rate by 1.6 per cent in 2016, as strings of negative economic
indicators continued.
Naira
exchange rate had been on speedy downwards against major international
currencies in the past few days, dropping from N425/USD a week ago to the
current level which showed about 15.3 per cent depreciation week-on-week, the
fastest so far since the June 2016 official devaluation.
Why the latest crash?
As usual,
dealers blamed the development on scarcity of foreign exchange, occasioned by
CBN’s inability to intervene with significant quantity of foreign exchange.
However, a
new environment of speculation appears to have taken hold of the market as most
dealers are now hoarding whatever they have, while hiking the rate against a
speculated depreciation. One of the dealers in a commercial bank stated:
“The trend
since this week has been driven by speculations that Nigeria was running out of
reserves as real demand continues to grow faster than supply.
“Dollar is
very scarce in the market right now because many people do not know how low it
will fall in the near term, so people are holding on to their hard currencies
in order to watch the direction of the market.”
There is
also report that traders in Nigeria and from neigbouring countries are swelling
the crowd of speculative purchase of US Dollar in Nigerian markets.
President
of Association of Bureau de Changes in Nigeria, Aminu Gwadabe, told Reuters:
“Traders from neighbouring countries and some importers had also been moving in
recently, mopping up dollars and putting pressure on the Naira in a possible
speculative bid.”
Way out
Speaking
to Vanguard on the renewed pressure on exchange rate, Chief Economist and Head
of Research at FSDH Merchant Bank Limited, said: “The major driver is the
plunging oil receipt on account of low oil price and production.
“Recall
that oil exports had dominated our foreign exchange earnings in the last few
years accounting for more than 70% of our export proceeds. ‘’The Foreign Direct
Investment (FDI) has also dropped drastically because of no clear policy
direction on the part of the government. ‘’The International Oil Companies
(OICs) have stopped investments because of no clarity in respect of Petroleum
Industry Bills (PIB).
The
Foreign Portfolio (FPIs) have also dropped drastically because of foreign
exchange instability and weakness in the economic fundamentals of the country.”
On the way
out of the forex crises, he stated: “The monetary authority should ensure that
it does not bow to the current pressure to reduce the interest rate.
‘’If the
yields on the fixed income securities are above the inflation rate, foreign
portfolio investors, FPIs, may soon be bringing investments to Nigeria and thus
increase the supply of forex.
“Also the
fiscal authority should communicate clear policies to drive the economy so that
private investments (both local and foreign) can come in.
“Government
should also ensure that the Petroleum Industry Bill, PIB, is passed so that the
IOCs can have a clearer direction of what to expect.
“This will
stimulate investments in that sector and ensure that foreign exchange flows in.
Government can also consider selling the proposed 5% stake in the NLNG through
a transparent process.
“The CBN
has been managing the exchange rate at the interbank market so that it does not
move so much beyond a particular range.
This gap
may continue until there is adequate supply at the inter-bank market.
“The
implication of all these is continued increase in local prices worsening
economic performance.”
CBN fights
speculations
Earlier
this week CBN appeared to have renewed its restriction measures on access and
usage of independent foreign exchange resources following which commercial
banks sent out e-mails to their customers reflecting the guidelines.
“All customers of financial institutions are
expected to only use their accounts for their direct personal/company related
transactions. “No customer of any financial institution is permitted to engage
in any activity that could be perceived as international money remittance
service (IMTO) or bureau de change (BDC) activities without the express
approval of the CBN,” the e-mail said.
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