03 December 2013, Lagos – The Central Bank of Nigeria, CBN, has warned authorised foreign exchange dealers not to sell foreign currency purchased from its regulated Retail Dutch Auction System, RDAS, as well as autonomous market sources at a rate that is two per cent above the buying rate. CBN also warned that the two per cent margin should be applicable to all funds by bureau de change (BDC) operators regardless of the source of such funds.
The CBN stated this in a circular, titled: “Re: Development in the Foreign Exchange Market”, addressed to all authorised dealers and BDCs that was posted on its website at the weekend. It said the decision was in furtherance to the provision of paragraph four of the circular ref. No TED/FEM/FPC/GEN/01/009 dated September 26, 2013 and urged authorised dealers and BDC operators to comply with the directive. It also insisted that the selling rate by the authorised dealer to BDCs should be the prevailing interbank exchange rate plus a margin not exceeding one per cent.
The CBN stated: “Foreign exchange cash purchased by BDCs from authorised dealers and the CBN shall be sold to foreign exchange end-users at a rate not exceeding two per cent margin above the buying rate “For the avoidance of doubt, the two per cent margin shall be applicable to all funds by BDCs regardless of the source of fund. Authorised dealers shall continue to sell foreign exchange cash to BDCs subject to a maximum amount of $250,000 per week per BDC.” Continuing, it noted that authorised dealers “shall continue to render weekly returns on sales to BDCs and the latter shall also continue to render weekly returns on purchases from authorised dealers.
“In addition, BDCs are enjoined to keep adequate records of foreign exchange sales and purchases for purpose of monitoring by the authorities. BDCs shall continue to render weekly returns on utilisation of funds from all sources to the CBN.” Meanwhile, in line with its resolve to defend the local currency, the central bank offered a total of $600 million at the RDAS, and sold a total of $599.938 million.
However, the naira appreciated slightly at the official market by one kobo to close at N155.72 to a dollar, compared to the N155.73 to a dollar it was the preceding week. Also, at the interbank market, the nation’s currency climbed by 11 kobo to close at N158.60 to a dollar. But as demand for the greenback at the BDC segment continued to rise, the naira weakened against the dollar at that arm of the market to N170 to a dollar.
Analysts at Cowry Asset Management Limited said in a report at the weekend: “This week, we expect spillover of demand in the parallel market, occasioned by the two-day public holiday in the United States. Hence we presage a depreciation of the naira at the interbank and parallel markets. “The official market may also experience pressure from importers attempting to beat the likely closure of the market at the middle of the month as has been the practice in recent years.”
Interbank/Money Market The interbank money market recorded improved liquidity last week as a result of matured long-term and short-term financial instruments which was met with less-than-expected mop-up action by the CBN.
A total of N131.21 billion worth of 255-day matured treasury bills hit the market last Thursday. However, the CBN deployed its open market operations, OMO, instrument to mop up funds worth N100 billion. A breakdown of this, according to a report by Cowry Asset included 64-day bills worth N20 billion; 65-day bill worth N20 billion; 71-day bills worth N30 billion; and 72-day bills worth N30 billion. Consequently, interbank rates moderated for all placement tenors.
Therefore, data from the FMDQ OTC showed that various tenors of the Nigerian Interbank Offered Rates (NIBOR) closed lower. For instance, the call tenor closed at 10.54 per cent; 7-day at 10.96 per cent; 30-day at 11.37 per cent; 60-day at 11.71 per cent; 90-day at 12 per cent; 180-day at 12.29 per cent and 365-day at 12.62 per cent.
Nevertheless, this week, the CBN is expected to auction treasury bills worth N124.29 billion. The instrument would comprise 91-day bills worth N22.97 billion; 182-day bills worth N30 billion; and 364-day bills worth N71.33 billion. However, bills worth N241.75 billion (91-day bills worth N22.97 billion; 182-day bills worth N30 billion; 195-day bills worth N131.96 billion; and 396-day bills worth N56.82 billion) would mature on Thursday. “With the resultant net increase in system liquidity, we expect interbank market rates to trek southwards this week,” analysts at Cowry Asset Management stated.
Bond Market Amid inflows, which partly constituted retired 7-year 10.98 per cent FGN Nov 2013 bonds worth N10 billion, the over-the-counter bond market registered bargain hunting activities, which informed price appreciation (and decline in yields) for most maturities. The 20-year, 10 per cent FGN Jul 2030 instrument appreciated modestly by one kobo (yield stood at 12.99 per cent); the 7-year 16 per cent FGN 2019 bond gained 10 kobo (yield softened to 12.77 per cent); while the 5-year, 4 per cent FGN April 2015 debt upped by 12 kobo (yield fell to 13.05 per cent). However, the three-year, 13.05 per cent FGN Aug 2016 paper lost 15 kobo (yield increased 12.77 per cent from 12.63 per cent). Non-oil Revenue
In its determination to broaden its revenue base, the federal government last week said it was targeting N2.95 trillion in tax revenue from the non-oil sector in 2014 by tightening the noose around tax evaders. Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, also said over 75 per cent of small scale business operators had the penchant for tax evasion in the country. Okonjo-Iweala noted that the non-oil revenue drive would jack up the Federal Internal Revenue Service (FIRS) target put at N2.2 trillion by N75 billion. She disclosed that the federal government had contracted McKinsey & Co., a leading consultancy group, to help government work out modalities for the project.
“One of the areas of weakness has always been in our tax policy. The new move will see the non-oil sector contribute more to the economy through payment of appropriate taxes by the relevant organisations. “The FIRS has a target of N2.2 trillion under the 2014 budget and Nigeria can increase this by another N75 billion and we hope that in the medium-term we can improve further.
“The company (McKinsey) will collect 1.75 per cent from the projected revenue, which is one of the lowest in the world,” the minister said. Investment in Power, Gas Sectors The federal government will require a yearly investment of $9.4billion in the power and gas sectors to fuel the projected power growth that would be engendered by the recent sale of the assets of the Power Holding Company of Nigeria (PHCN), the Minister of Power, Prof. Chinedu Nebo, has said. He noted $4.5billion and $400million would be invested yearly in gas pipeline infrastructure and the gas processing for power supply and industry, respectively.
In the area of power transmission, Nebo said $1.25billion investment would be needed yearly until 2016, adding however, that when the transmission funding structures are concluded, the figure would go up to $1.5billion until 2020. To fuel the projected 2,500megawatts yearly growth in generation, Nebo said $3billion would be required annually.
*Obinna Chima, Thisday