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FOREX: Naira crashes to 288/dollar at new official market

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By Yemie ADEOYE

LAGOS-THE naira plunged by 31 per cent to 288.85 against the United States dollar on Monday at the close of trading at the newly established interbank market.

The local currency also depreciated at the parallel market where it closed at 346 to the greenback, down from around 330 and 335 on Friday.

The Central Bank of Nigeria had last week introduced new guidelines for the nation’s foreign exchange market with the adoption of a single structure through the interbank/autonomous window.

 

The naira, which was pegged at 197-199 per dollar before the emergence of the new forex policy, closed at 288.85 to the dollar on Monday, with the forces of demand and supply coming to play to determine the value of the nation’s currency after the CBN allowed it to float freely.

The CBN said it cleared a total foreign exchange demand backlog of $4bn with a dollar exchanging for N280 at the foreign exchange market.

The apex bank, in a statement issued on Monday by the Acting Director, Corporate Communications Department, Mr. Isaac Okoroafor, expressed satisfaction with the performance of the market on its first day.

The statement reads in part, “Nigeria’s new foreign exchange market made a robust take-off on Monday, June 20, 2016, clearing all the backlog of $4bn pent-up demand for foreign exchange, with the naira exchanging at 280 to the United States dollar.

“The objectives of the CBN to clear the forex demand backlog, perform its role as strictly a market intervention participant, and re-launch a functioning and efficient interbank market were met.

“The CBN, in line with its desire to promote a transparent, liquid and efficient market, and in order to engender market confidence and ensure credible price formation, intervened in the market through a special secondary market intervention sales addressing the issue of the FX demand backlog by clearing $4.02bn through spot and forward sales.

“This served in no small way to stimulate price discovery, with the determination of a marginal rate of $/280.00 through the special SMIS process. So, we can state to you categorically that the FX demand backlog has now been cleared and behind us for good.”

Okoroafor assured market participants and the general public that the bank was committed to making the FX market globally competitive, credible, transparent, liquid and efficient.

Our correspondents gathered that the naira was trading around 270 to a dollar in the early hours of trading on Monday with no deals consummated by the banks as dealers were only interested in buying.

A currency analyst at Ecobank, Mr. Kunle Ezun, said when the market opened in the morning, the naira went up to 285 to the dollar and later came down to 255 to 260 before the CBN intervened in the market by selling over $500m at the rate of N280 per dollar.

He said, “We didn’t have any firm deals; no deal was consummated until when the CBN intervened and gave the rate at 280 and that became the rallying point for the market. We saw price discovery; different banks were quoting on two-way quote for the naira and dollar.

“We saw a lot of quotes today; banks were willing to quote but everybody was willing to buy, not to sell until the CBN came to the bank later in the day to sell. When the CBN sells to you, you are expected to sell in the market. So that created activity in the market.

“What we had today (Monday) is more like a market depreciation of the naira to 280. Tomorrow (Tuesday), you may see appreciation of the naira or further depreciation. It depends on how much the CBN is willing to supply to the market. If they are able to supply what they supplied today in two or three times consecutively, the market will be calmed and the naira will appreciate in the next few days.”

The Head, Research and Investment Advisory, Sterling Capital, Mr. Sewa Wusu, said the naira closed at 288.85 after a little bit of oscillation, adding, “The interplay of demand and supply has started. I think the proper value of the naira will be determined as time goes on and more dollars will also come.”

He, however, said foreign portfolio investors might still be on the sidelines to watch developments to see how the current mechanism would play out before they would begin to have some level of comfort on the level of dollar liquidity.

The President, Association of Bureau De Change Operators of Nigeria, Alhaji Aminu Gwadabe, said the naira fell to 346 against the dollar at the parallel market, because “the interbank market has not effectively taken off.”

He said, “There is no way demand can reduce at the parallel market now because the 41 imported items are still banned from accessing official forex market,” he said, adding that the backlog of dollar demand was far higher than $4bn.

“Up untill now, many correspondent banks have yet to send their unmet obligations to the Central Bank of Nigeria. And for the foreign inflow that we are expecting, there is still lack of confidence by the investors as to how liquidity is going to be sustainable so that when they want to move out, they won’t have the problem of dollar scarcity. So, they are watching to see how liquid the market will be, and that will take a couple of weeks before this can be unravelled,” Gwadabe explained.

There may be “higher volatility until the market becomes more functional,” Bloomberg quoted the Head of Africa Strategy at Standard Chartered Bank Limited in London, Samir Gadio, as saying in an e-mailed response to questions.

PUNCH-

 

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Business

Nigeria pays US$4.9 billion on petrol subsidy in 2024- NNPCL

It was however noted by Biztellers.com.ng, that although subsidy is back in effect, the main reason for that is the increasingly weak state of the Naira and the country’s extreme dependence on products importation. Also unlike the previous subsidy era, where several oil marketers were getting free subsidy refunds for unverified product importation, this subsidy era is witnessing only one importer, the NNPCL, which in effect is the sole receiver of government subsidies. 

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Yemie ADEOYE

INSPITE of the official position of the Nigerian government that the controversial petrol subsidy is gone for good as announced by the President on assumption of office, the state owned Nigerian National Petroleum Corporation Limited, NNPCL has disclosed that petrol subsidy is still fully operational in Nigeria, although, under a different identity.

Umar Ajiya, Chief Financial Officer at the NNPCL, disclosed that it cost the company a staggering N7.8 trillion (US$4.9) to cover this price gap in the first seven months of 2024.

Rather than simply referring to these claims as subsidies, he stated that the company is merely managing the price difference in petrol imports on behalf of the federation, stressing that this should not be misconstrued as a return to subsidy payments.

This revelation has reignited discussions on whether the NNPC is indirectly offering subsidies, a concept typically defined as selling a product below its cost price.

Documents reviewed by Biztellers.com.ng showed that the term “subsidy” was used extensively in official correspondence between the NNPCL and the presidency, particularly in reference to the “shortfall.”

Recall that President Bola Tinubu reportedly approved NNPC’s request to utilize the 2023 final dividends due to the federation to offset these costs.

However, during a media briefing on Monday about the company’s 2023 audited financial statements, Ajiya refuted claims that the NNPC is involved in any subsidy scheme.

Ajiya further disclosed that the Nigerian government owes the NNPC N7.8 trillion ($4.9 billion) in subsidy-related debts for the period from January to July 2024.

In furtherance of his clarification to the News Agency of Nigeria (NAN), Ajiya insisted that no subsidy payments have been made to any marketer in the last nine years, citing the NNPC’s role as the sole importer of petrol under supply contracts.

He said, “In the last eight to nine years, NNPC Ltd. has not paid anyone a dime as a subsidy; no kobo has been disbursed by NNPC Ltd. in the name of subsidy. No marketer has received any payment from us for subsidy.”

“What has been happening is that we have been importing PMS, which has been landing at a specific cost price, and the government tells us to sell it at half price. So the difference between the landing price and that half price is a shortfall.

“And the deal is between the Federation and NNPC Ltd., to reconcile, sometimes they give us money, so there is no money exchanging hands with any marketer in the name of subsidy.”

Ajiya remained silent on how much of the $4.9 billion could have been remitted to the federation account if the NNPC had not been covering the “shortfall.”

It was however noted by Biztellers.com.ng, that although subsidy is back in effect, the main reason for that is the increasingly weak state of the Naira and the country’s extreme dependence on products importation. Also unlike the previous subsidy era, where several oil marketers were getting free subsidy refunds for unverified product importation, this subsidy era is witnessing only one importer, the NNPCL, which in effect is the sole receiver of government subsidies.

 

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Banking

CBN Denies Currency Devaluation

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CBN Pegs Interest Rate at 14%

 

The Central Bank of Nigeria (CBN) has refuted claims of devaluing the.

 

Earlier reports suggested that the CBN had devalued the Naira, lowering its exchange rate from N631 to the dollar, compared to the previous day’s rate of N461.60 at the Importers and Exporters (I&E) window.

 

However, the Central Bank of Nigeria (CBN) released a statement on Thursday through its Acting Head of Corporate Communications, Dr. Isa Abdulmumin, categorizing the report as false information.

 

In the statement titled ‘CBN Has Not Devalued The Naira’, he said the attention of the apex bank was drawn to the news report by an Abuja based newspaper edition of June 1, 2023, titled “CB Devalues Naira To 630/51”.

 

However, the CBN stated categorically that the news report was replete with outright FALSEHOODS and destabilizing innuendos, ‘reflecting potentially willful ignorance of the said medium as to the workings of the Nigerian Foreign Exchange Market.’

 

“For the avoidance of doubt, the exchange rate at the Investors’ & Exporters (I&E) window traded this morning (June 1, 2023) at N465/USS1 and has been stable around this rate for a while.

 

“The public is hereby advised to ignore the news report by Daily Trust in its entirety, as it is speculative and calculated at causing panic in the market,” the CBN spokesman added.

 

He, therefore, advised media practitioners to verify their facts from the Central Bank of Nigeria before publishing in order not to misinform the public.

 

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Banking

BREAKING: CBN Increases Interest Rate By 0.5%

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CBN Pegs Interest Rate at 14%

 

The interest rate in Nigeria has been raised to 18.5 percent, up by 0.5 percent, from 18 percent where it was pegged in March 2023.

 

The Central Banks of Nigeria’s (CBN) Monetary Policy Committee (MPC) resolved to this effect at its third meeting of 2023 in Abuja, on Wednesday.

 

Governor, CBN, Godwin Emefiele, made the disclosure in the communiqué of the MPC’s meeting,  thereafter.

 

While engaging the media at the end of the two-day meeting, Emefiele, said the committee voted to keep the asymmetric corridor at +100 and -700 basis points around the MPR.

 

In the view of the MPC, rising inflation rate is traceable to the high energy cost and challenges around the supply chain, among others, which lie outside the corridors of the CBN.

 

Emefiele said, “The current trend in price development would continue to be monitored by the bank with greater collaboration with fiscal authority to address the drivers of inflation.”

 

Biztellers reports that the CBN had effected six consecutive interest rate increases, which has seen the rate move from 11.5 percent in March 2022 to 18.5 percent in May 2023.

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