Concerns as Naira Slides Further

15 December 2015, Abuja – The naira continued its downswing on the parallel market segment of the foreign exchange market last week as it traded between N257 and N259 to a dollar in some areas in Lagos, from N252 to a dollar the preceding week. This is just as scarcity of the greenback persisted.

Naira notes.

Naira notes.

THISDAY learnt that as a result of the decision of the Central Bank of Nigeria (CBN) to shut out some bureau de change (BDC) operators from its forex window, some of the currency dealers that were fortunate to purchase the greenback have since resorted to hoarding the foreign currency.
The CBN had suspended about 1,600 BDC operators from participating in its weekly forex auction. The regulator’s hammer fell on the currency dealers over their failure to render appropriate returns on the sale of dollars.

As a result of this, the spread between the parallel market rate and the interbank widened further on last week.

The Director of Communications Department, CBN, Alhaji Ibrahim Mu’azu, said the BDCs segment is not the window for accessing foreign exchange for importations.

“We did not withdraw their licence; we only assumed that they have exhausted the foreign exchange position. So, whenever they come with returns, we can continue to disburse to them. Naira can exchange for N250 or N500 at the parallel market, but not at the BDCs and they cannot sell at that amount because they officially regulated margin. It only happens on the roadside.

“Why would a Nigerian with genuine demand for foreign exchange resort to patronising roadside operators that is costly instead of a licenced BDC operator, who by rule establishing it cannot sale above N205 per dollar given the current official rate?” he added.

THISDAY reported last week that there are strong indications that the CBN was seriously considering discontinuing its twice-weekly dollar cash sales to BDC operators as it seeks to sanitise the sub-sector. The move, THISDAY gathered from a very reliable central bank source, is targeted at reducing growing pressure on the country’s foreign reserves, which have fallen in the past few weeks in lockstep with the exchange rate of the naira at the parallel market.

In place of cash, the central bank is considering introducing prepaid electronic cards that will stem the sale of cash by currency dealers to their customers.

“I must tell you that we are planning to reform the sector by introducing prepaid electronic cards. So when they (BDCs) apply for dollars and have shown evidence of the BVN, the CBN through its auction, would transfer the foreign currency to the BDC’s account, but they won’t be able to withdraw cash.

“Effectively, if a customer applies for dollars, the BDCs would transfer the cash to the customer’s prepaid card,” a source told THISDAY.

However, the official exchange rate has remained within the range of N196.97/$1 and N197/$1 since 21 July, 2015 till date. After opening at N197/$1 last Monday, the official exchange rate depreciated to N196.97/$1 and stayed at the same rate till the end of the week. Also, interbank market rate opened at N199.10/$1 last Monday and equally declined by three kobo to stay at the same rate till the end of the week.

In a related development, the Nigeria’s external reserves slipped to a 5-month low of $29.6 billion during the week. Meanwhile, oil price outlook remains bleak with Brent crude falling below $40 per barrel last week following OPEC’s decision to defend its market share.

Interbank Market
After conducting an OMO auction the preceding week, the CBN paused its mop-up activities last week, leaving liquidity at high levels. After hitting N1 trillion the preceding week, liquidity in the Nigerian financial system stayed above N1 trillion on the first two trading days last week. Consequently, money market rates – Open Buy Back (OBB) and overnight – stayed low, closing at 0.5 per cent and 0.9 per cent respectively while average Nigerian Interbank Offered Rates (NIBOR) closed at 8.8 per cent on Monday.

However, with 0.5 per cent, OBB flat week-on-week, while overnight rates rose eight basis points after closing one per cent.

“Given the monetary authority’s stance to leave liquidity at high levels to promote real sector lending, we do not see rates rising far higher than current levels in the short to medium term,” analysts at Afrinvest West Africa Limited stated.

Bond Market
Activities in the Nigerian bond market were predominantly bullish last week as a general drop in yields was noticed across tenors. To start off the week, there was a general rise in price of all bond instruments save for the AUG 2016 bond whose price fell one kobo on Monday. The Debt Management Office (DMO) re-opened the FEB 2020 and MAR 2024 instruments at an aggregate offer of N50 billion last Wednesday. The result from the auction however indicated that N86.8 billion was subscribed for from the N30 billion available offer for the FEB 2020 while N59 billion was subscribed for from the N20 billion available for the MAR 2024.

“We believe the level of participation in the last bond auction for the year was driven by the high liquidity in the market given that the amounts subscribed were only 34.6 per cent and 33.9 per cent of amount allotted for the FEB 2020 and MAR 20

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