The return of volatility into Nigeria’s exchange rate is worrisome. But a combination of several factors, including the closure of Nigeria’s land borders could help stop movement of huge dollars outside the economy, President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe has said.
He said the naira is facing one of its toughest times since 2017, when it was last devalued. The naira was on Thursday exchanging at N420 to dollar in the parallel market during the morning hours but recovered later in the evening to N385 to dollar.
However, the local currency remained firm at the official market, closing at N306.95 to dollar and closed at N366.75 to a dollar on the Investors and Exporters’ (I&E) Forex window.
Gwadabe said currency speculators and investors converting their naira asset to dollars are to blame.
According to him, many Nigerians and foreign investors, sensing the possible decline in the value of the naira, are moving their naira assets to dollars, to avoid erosion of value.
Reacting, the CBN said the fundamentals in the market do do not support devaluation of the naira. “We wish to note with displeasure, the rumours 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 forex market. These rumours are false, unwarranted and calculated to serve their dubious and selfish ends,” the apex bank said in a stamens.
“The apex bank said it has begun a robust and coordinated investigation in collaboration with the Nigerian Financial Intelligence Unit (NFIU) and related agencies to uncover the unscrupulous persons and forex dealers who are creating this panic, and the full weight of our rules and regulations will be meted out to them, including, but not limited to, being charged for economic sabotage”
According to the CBN, it had in nearly four years, successfully maintained relative stability in all segments of the foreign exchange market, which has enabled investors, households and other economic agents to plan and to conduct their genuine foreign exchange transactions with relative ease;
The drop in crude oil prices to $32.85 per barrel, the Coronavirus epidemic ravaging global economies, local and foreign investors dumping fixed-income assets and decline in the foreign exchange reserves are some remote reasons that brought the local currency under pressure.
Traders said more investors are worried about the value of the naira after oil prices plunged, pushing them to sell down their position on the debt and equity markets.
According to them, selling pressure on local debt had persisted because of worries by fund managers on the implications of the fall in oil prices on naira value.
The external foreign exchange reserves have declined to $36.18 billion by March 9, from $37.45 billion they were on February 10, this year.
Analysts surveyed by Bloomberg said the CBN will likely opt for a devaluation of between 10 per cent and 15 per cent.
Analysts said the local currency will continue to come under pressure, but the CBN is committed to keep it steady in line with its mandate of maintain exchange rate stability. The CBN spent nearly $16.56 billion to defend the naira in the last one year, The Nation has learnt.
Analysis of the regulator’s half year report showed that the apex bank defended the local currency with $8.28 billion through its direct intervention within the first six months of 2019.
Financial analysis estimated that the same level of intervention, or even higher amount applied in accompanying six months ended December 2019.
The amount was given to different segments of the inter-bank foreign exchange (forex) market, the report said, indicating that the forex sales were meant to manage the demand pressure and ensure exchange rate stability, which are within the core mandates of the apex bank.
Despite the current pressure on the naira, CBN Governor, Godwin Emefiele has vowed to keep the naira steady for now, insisting that the slide in foreign reserves is not a cause for concern.
CBN’s commitment to naira stability is accompanied with new policies and bottlenecks meant to reduce dollar spending and meet critical obligations.
Bu analysts said the CBN will be unable to maintain naira’s value for much longer as drop in oil prices continues to take a toll on the foreign reserves.
Although the local currency is currently at its weakest since august 2017 when it was devalued last, it has traded in a very narrow margin in that period, under the CBN management.
The CBN, in February, introduced new domiciliary account rules in which it directed that customers can deposit dollar into their domiciliary accounts but are not allowed to transfer it to another party. Also, only electronic fund transfers into domiciliary accounts can be transferred from such accounts to third parties while cash deposits into such accounts can only be withdrawn in cash.
According to the CBN, “The introduction of several foreign exchange management measures side-by-side with complementary interventions in food production and manufacturing has drastically reduced food importation, which hitherto constituted a large chunk of the pressure on the foreign exchange market,” it said.
“Although the outbreak of the Coronavirus led to global economic slowdown, fall in the price of crude oil, and less inflow of dollars into Nigeria, the associated public health concerns have also led to factory closures in China, substantial drop in imports, widespread travel restrictions around the world, and cancellation of many conferences, sporting events, business travels, and forex orders,” it added.
The CBN said the size of Nigeria’s foreign exchange reserves remains robust and comfortable, given the current realities of Nigeria’s genuine and legitimate forex demand.
As such, the CBN remains able and willing to meet all genuine demand for foreign exchange for legitimate transactions.
The CBN said it is working with the fiscal authorities to properly and accurately dimension the immediate and expected impacts of the Coronavirus in order to respond comprehensively and at the same time, ensure a sound and stable financial system conducive for job creation and inclusive growth.
“In light of current circumstances and macroeconomic fundamentals, the CBN has not devalued the naira. Consequently, the CBN will invoke the full weight of applicable sanctions on any persons and authorized dealers found to be involved in such disruptive and speculative market behavior,” it said.
