CBN addresses foreign exchange market pressures

CBN Mulls New Recapitalisation For Banks

By Doris Isreal Ijeoma The Central Bank of Nigeria (CBN) has announced recent fluctuations in the foreign exchange market are largely driven by corporate demand and seasonal summer uptick.  This was disclosed in a statement by CBN on Friday, July 19. The statement reads:”The Central Bank of Nigeria (CBN) wishes to inform the general public that recent movements in the foreign exchange market are driven largely by demand pressure from corporate entities and the expected seasonal uptick during the summer period. “The CBN, therefore, wishes to assure the general public that it has commenced a regular sale of foreign exchange through Authorized Dealer Banks and licensed Bureaux De Change (BDCs) to improve supply in the foreign exchange market in line with its price stability mandate and its commitment to ensure a well-functioning and liquid market. “Over the next few weeks, the CBN will continue to support various segments of the official markets with liquidity. In line with the above, the CBN on Thursday, July 18 and Friday, July 19, 2024, sold a total sum of US$106,500,000.00 (One Hundred and Six Million and Five Hundred Thousand US Dollars Only) to 29 (Twenty-Nine) Authorized Dealer banks between an exchange rate range of N1,498.00/US$1 to N1,530.00/US$1. In addition, it bought US$9,500,000 (Nine Million and Five Hundred Thousand Dollars) from 4 (Four) Authorized Dealer banks at rates between N1,510.00/US$1 and N1,550.00/US$1. The value date for all the transactions is July 19, 2024. “Additionally, the CBN will continue closely monitoring compliance with existing trading rules and regulations by authorized dealer banks to promote ethical conduct and support the drive to achieve stability in the foreign exchange market. Therefore, the general public is advised to direct their foreign exchange demand to their banks and BDC operators in accordance with prevailing market regulations.”

Naira Plunges Across Forex Segments Amid Liquidity

Naira Plunges Across Forex Segments Amid Liquidity

The naira closed last week on a losing streak, plunging in all segments of the foreign exchange (forex) market. “In the local currency market, the performance of the naira was underwhelming”, said analysts at Afrinvest. At the parallel market, the base currency (Dollar) appreciated 1.8 per cent week-on-week (w/w) against the price currency (naira) to N1,150.00/$. While at the NAFEM window, the base currency (dollar) rose 0.4 per vent w/w against the naira) to N794.89/$. Meanwhile, activity level in the NAFEM window improved by 11.1 per cent w/w to $817.7 billion from $736.3 billion in the prior week. At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira remained at $4.2 billion. “We do not foresee any changes given that CBN has cleared all Non-Deliverable Forwards (NDFs) open contracts, shortly after rendering contracts for tenors between one and twelve months inactive in response to reforms in the NAFEM window. This week, we expect rates across different segments of the market to depreciate following demand-supply imbalance”, said Afrinvest. At the end of trading last week, system liquidity surged higher by 667.2 per cent to close at N527.1 billion. Nonetheless, the price of liquidity in the banking system, the OPR and OVN rates rose 2.9ppts and 2.4ppts w/w respectively to 23.8 per cent and 24.6 per cent. At the primary market segment for T-bills, the CBN offered bills worth N211.7 billion across the 91 (N9.7 billion), 182 (N1.8 billion), and 364-day (N199.9 billion) tenors. Demand was healthy across all ends of the curve as the average bid-to-cover ratio printed at 5.8x due to robust system liquidity. Stop rates across the 91-day and 182- day instrument improved, rising 100bps apiece to 7.0 per cent (91-day) and 11.0 per cent (182-day). Meanwhile, the stop rate remained unchanged at 16.8 per cent in the 364-day instrument. Meanwhile, the secondary market segment saw a bullish outing as the average yield across all tenors compressed 213 basis points (bps) w/w to 11.2 per cent. The bullish outing was driven by buy interest on the mid (182-day) and long-dated (365-day) instruments as yield saw a decline of 242bps and 221bps w/w respectively. In the coming week, we anticipate healthy liquidity conditions due to FAAC inflow and Bond coupon payment. Consequently, we expect buy sentiment to be sustained at the T-bills secondary market. Meanwhile, Brent crude oil price futures inched higher by 1.4 per cent to close at $81.75/bbl., as traders remained on the sideline ahead of next week’s Organisation of Petroleum Exporting Countries (OPEC+) meeting. The anticipated meeting would focus on output cut agreements for 2024, following the recent downturn in oil price due to strong supply from non-OPEC producers. Meanwhile, on the domestic front, Nigeria’s foreign reserves fell 28bps ($91.7m) w/w to $33.2bn (22/11/2023).

Naira Depreciates To N827.83/$1 At Official Market

Naira Plunges Across Forex Segments Amid Liquidity

The naira again declined against the US dollar at the official market on Thursday, exchanging for N827.83 to one U.S dollar after a slight appreciation on Wednesday which saw the local currency exchanging at N818.99/$1. This is still a slight gain when compared to the N850.22 it recorded on Tuesday. However, the naira closed flat at the parallel forex market where forex is sold unofficially, the exchange rate closed at N1140/$1 as against the same N1140/$1 it quoted on Wednesday, representing 0.00 per cent, while peer-to-peer traders quoted around N1127.01/$1.  The intraday high recorded was N1100/$1, while the intraday low was N751.00/$1, representing a wide spread of N348.78/$1. Similarly, the naira also fell to the Euro, exchanging at N1,175/€1 at the parallel market, while it goes for N898.44/€1 at the official market. Also the pound sterling goes for N1,370 and N1029.7441 at the parallel and official market respectively. According to data obtained from the official NAFEM window, forex turnover at the close of the trading on Wednesday was $173.51 million, representing a 20.87 per cent increase compared to the previous day.  The local currency struggle at the foreign exchange market is coming on the heels of rising inflation in the country which saw the inflation rate jump to 27.33 per cent in October 2023 as prices of foodstuff continued to increase in the aftermath of the removal of fuel subsidy by the President Bola Tinubu administration. This was according to the October 2023 Consumer Price Index (CPI) and Inflation Report released by the National Bureau of Statistics (NBS) on Wednesday. The CPI, which measures the changes in the prices of goods and services, rose from 26.72 per cent to 27.33 per cent showing an increase of 0.61 per cent points. “In October 2023, the headline inflation rate increased to 27.33 per cent relative to the September 2023 headline inflation rate which was 26.72 per cent,” the report partly read. “Looking at the movement, the October 2023 headline inflation rate showed an increase of 0.61 per cent points when compared to the September 2023 headline inflation rate. “Furthermore, on a year-on-year basis, the headline inflation rate was 6.24 per cent points higher compared to the rate recorded in October 2022, which was (21.09 per cent). “This shows that the headline inflation rate (year-on-year basis) increased in October 2023 when compared to the same month in the preceding year (October 2022).”

Naira Rallies Across Markets, Trades Below N900/$1 At P2P

CBN Mulls New Recapitalisation For Banks

For the first time since August 2023, the exchange rate dipped below the N900 to $1 mark on peer-to-peer (P2P) platforms, including Binance, indicating a robust turnaround for the Naira. Data from the acclaimed Binance Crypto trading platform showed the exchange rate at an impressive N855 to $1. This development highlights the naira’s impressive recovery trajectory. The black market, often regarded as an unofficial gauge of the currency’s vigour – has listed exchange rates ranging from N1000 to N1,100 for $1 in cash transactions. Several black market dealers shared the sentiment that the naira’s rally might be linked to the recent influx of positive news reports, notably those highlighting the government’s progress in clearing forex backlogs. A black market operator, requesting anonymity, mentioned that the market may be transitioning from ‘panic buying’ to ‘panic selling,’ a stark reversal of the previous trend. On the official front, the Nigerian Autonomous Foreign Exchange Market (NAFEM) witnessed the Naira closing at an encouraging N776.14, marking its strongest finish since October 13th of the current year, a notable improvement from the preceding day’s close of N793.2. The breakthrough below the N900 threshold on the p2p market is being celebrated as a considerable psychological triumph by Nigerian government officials and their surrogates on social media. The Naira commenced the week trading at N1,110 last week Monday, experienced a slight dip to N1,180 on Tuesday, and then exhibited a positive trend on Wednesday and Thursday, closing at N1,175 and N1,125, respectively. The most astounding surge occurred last Friday, with the Naira selling at N950/$. Naira rebound may not be unconnected with augmented foreign exchange inflows, deft policy interventions by the Central Bank of Nigeria (CBN), and stringent measures against illegal financial activities. It would be recalled that the CBN focused on Tier 2 Nigerian banks and international banks with over 75 to 80 per cent of the foreign exchange forward contracts obligations cleared. Findings show that Citigroup ($72 million), Stanbic ($125 million), and Standard Chartered ($63 million) are among the companies that are receiving forex futures deliveries last week The FG also stated that it expected to spend $10 billion to settle FX obligations, support the country’s FX market, and stabilize the naira. Minister of Finance Wale Edun, said that forex liquidity will improve in the coming weeks. He further highlighted that discussions with sovereign wealth funds willing to invest and provide advances along with investments are in advance phases. A US multinational financial services firm, JP Morgan, on Wednesday projected that the naira would trade at N850/$ at the Investors’ and Exporters’ forex window before the end of 2023. However, the US bank said the recent efforts to restore a flexible forex regime may be sustained given the willingness to accompany it with tighter monetary conditions.

Despite Slight Appreciation, Naira Still Weak – Report

Naira Plunges Across Forex Segments Amid Liquidity

In spite of the slight appreciation of the Naira at the weekend, the World Bank has listed Nigeria’s local currency as being among the worst-performing currencies in Sub-Saharan African in the first ten months of 2023. According to figures obtained from Aboki forex, the naira was bought and sold for 1,140/$ and 1,150/$1 at the weekend on the parallel section of the foreign exchange market as against the 1,310/$ on Thursday. Over the past two weeks, the Naira has been hitting new lows, as it sold as low as N1300/$ at the black market, and N848/$ at the official market. However, within the past few days, the currency has been on an upward swing, as it appreciated to N789.84/$ on Friday. But in a report by the World Bank the Nigerian Naira has posted a year-to-date depreciation of about 40 per cent, making it the weakest currency in Sub-Saharan Africa, alongside the Angolan Kwanza. Other currencies with significant losses include the South Sudanese pound which has depreciated by about 33 per cent YTD, the Burundian Franc which has depreciated by 27 per cent YTD, the Congolese Franc (18 per cent), Kenyan Shilling (16 per cent), Zambian Kwacha (12 per cent), Ghanaian Cedis (12 per cent), and Rwandan Franc (11 per cent). In the report, it highlighted that between March 2020 and June 2023, there was a widening disparity between the parallel market exchange rate and the official exchange rate. The disparity widened to as much as 80 per cent in November 2022 and dropped to 60 per cent in June 2023. The prioritization of strategic sectors and the imposed price ceilings and trade restrictions pushed transactions to the parallel market, which started to account for a large share of the foreign exchange transactions in the country, including for remittances, tourism, and exports of non-oil products. After the unification and liberalization of the exchange rates in June 2023, the NAFEX rate converged to the parallel one, closing the gap. However, resistance toward the increasing pressure on the Nigerian naira coupled with limited supply of FX at the official window has led to the reemergence of the parallel market premium. Figures obtained from the Central Bank of Nigeria on movement of foreign reserves showed that the country’s external reserves recorded $76.82m accretion in one week, after it moved up from $33.249bn on October 19, 2023 to $33.326bn as of the end of October 26, 2023. It had earlier lost $841.75m in three months after it fell from $34.07bn as of July 7, 2023, to $33.23bn as of October 5, 2023. Meanwhile, an economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, attributed the naira appreciation to the Supreme Court judgment that brought finality to the litigation around the presidential election. He said the judgment removed uncertainty in the economy. “The pronouncement that the President made about efforts to boost the liquidity in the forex market may have also affected the level of confidence and influenced expectations because if people have expectations that liquidity will improve and the naira will appreciate, they would quickly begin to offload the dollars they have at a lower rate. “We need to seize the opportunity to push down the demand for foreign goods. We must reduce the demand for the dollars. We can have the naira appreciate better.”

Analysts Express Concerns Over Timing Of Lifting Forex Ban on 43 Items

CBN Mulls New Recapitalisation For Banks

The recent decision by the Central Bank of Nigeria (CBN) to lift the foreign exchange restriction on 43 items is seen as a move that could potentially boost market confidence. However, analysts argue that the timing of this decision is challenging, given the current global economic context, where capital flows are unfavorable for emerging economies. According to analysts at Afrinvest, the policy has good intentions as it aims to cautiously restore market confidence, which has been undermined by liquidity issues and previous unconventional policies. Nevertheless, the analysts highlight the unfavorable timing, as developed markets are experiencing moderating inflation, which supports improved real rates of return, while emerging markets face forex volatility, high inflation, and political uncertainty, which compound investment risks. Afrinvest recommends that the CBN should implement complementary policies to attract the necessary forex to achieve its objectives. They suggest seeking concessionary loans from bilateral and multilateral institutions to bolster foreign reserves. They also advise exploring oil-for-loan agreements to unlock liquidity, along with stronger efforts to combat oil theft and enhance oil production. The analysts cite data from the Nigerian Upstream Petroleum Regulatory Commission, which reveals a 14.0% month-on-month increase in the nation’s oil output to an average of 1.35 million barrels per day (excluding condensates) in September 2023. This marks the highest level since January 2022, and they attribute the improvement to the government’s commitment to curbing oil theft and bolstering fiscal capacity. Afrinvest emphasizes that the success of the CBN’s decision to reverse the forex ban on 43 items hinges on its ability to provide sufficient liquidity to meet the demand at the official window. They predict that, with adequate liquidity, the parallel market premium will gradually decline, but insufficient liquidity could lead to increased pressure in both the official and parallel markets. The analysts advocate a long-term approach to addressing Nigeria’s forex challenges, including containing oil theft, boosting non-oil exports, and encouraging cross-border investment in technology and service-based sectors. The CBN recently reaffirmed its commitment to enhancing foreign exchange liquidity and shared a 6-point plan to address forex challenges, including the lifting of the forex ban on 43 items. They also pledged to make regular market interventions and clear the current forex backlog. In 2015, the CBN, under the leadership of Godwin Emefiele, had imposed a forex ban on 43 items in an attempt to manage forex and promote import substitution. However, this policy failed to achieve its objectives due to misalignment with market forces and a lack of coordination between fiscal and monetary authorities, resulting in declining forex reserves and a weakening Naira. The decision to lift the forex ban is seen as a positive step to reduce pressure on the parallel market and curb speculative activities, potentially narrowing the gap between official and parallel market rates.

9 Years After, CBN Removes Restriction To FX On 43 Items

CBN Eyes Explicit Inflation-Targeting Framework To Enhance MP Effectiveness

The Central Bank of Nigeria says it has removes restriction to foreign exchange placed on forty-three in 2015. According to a statement signed by Director, Corporate Communications, Isa AbdulMumin, importers of those items are now free to access the FX market to purchase foreign exchange. Former CBN Governor, Godwin Emefiele had in 2015, placed a restriction on 43 items that cannot access forex at the FX market. According to Emefiele, at the time, it was part of effort to encourage local production. “Importers of all the 43 items previously restricted by the 2015 Circular referenced TED/FEM/FPC/GEN/01/010 and its addendums are now allowed to purchase foreign exchange in the Nigerian Foreign Exchange Market,” the Apex Bank said. The regulator added that it will continue to promote orderliness and professional conduct by all participants in the Nigerian Foreign Exchange Market to ensure market forces determine exchange rates on a Willing Buyer – Willing Seller principle. “The CBN reiterates that the prevailing Foreign Exchange (FX) rates should be referenced from platforms such as the CBN website, FMDQ, and other recognised or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates. “As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease. “The CBN is committed to accelerating efforts to clear the FX backlog with existing participants and will continue dialogue with stakeholders to address the issue. “The CBN has set as one of its goals the attainment of a single FX market. Consultation is ongoing with market participants to achieve this goal. Participants and the general public are to be guided by the above,” it further said.