27 February 2017, Lagos — As part of efforts to sustain its defence of the naira, the Central Bank of Nigeria (CBN) on Thursday sold $221,371,218.04 to banks in its second special wholesale intervention forwards since the new foreign exchange (FX) policy actions were announced a week ago.
A breakdown of the amount sold by the CBN showed that it auctioned $162,850,000 to 10 banks in a transaction with 30 days tenor, while six banks participated in a separate auction with 60 days tenor in which $58,521,217.04 was sold.
Owing to the new measures introduced by the central bank last week, the naira which had fallen to as low as N525/$ penultimate Friday, strengthened remarkably by N75 in just five days, to close at N450/$ last Friday.
With improved FX liquidity, some market analysts were cautiously optimistic yesterday that the naira could climb to N400-N425 to a dollar in the coming days.
Should this happen, the CBN would meet its objective of closing the gap between the interbank and parallel market rates.
The acting Director, Corporate Communications Department, CBN, Mr. Isaac Okorafor, said the CBN’s intermediation in the FX market through the wholesale interventions was aimed at easing the pressure on Nigerians who need to meet obligations that fall under visible and invisible transactions.
While expressing optimism that the wholesale intervention of the CBN would substantially ease pressure on the FX market, Okorafor said the CBN would continue to with the interventions based on qualified bids from banks on the requests of their customers.
He reiterated that the Bank was more than ready to support the interbank market by ensuring liquidity and transparency to guarantee efficiency in the FX market.
Renaissance Capital (Rencap) Limited, in a note at the weekend, also confirmed that rising oil prices and a deal with the Niger Delta militants had addressed both the oil price and volume challenges that hurt the country so much in mid-2016.
“FX reserves have risen over 20 percent to $29 billion,” which Rencap said gave the CBN the comfort to announce changes to its FX policy and injected more dollars into the local market.
It added: “We think N450-500/$ would attract investors even without $20 billion of cheap International Monetary Fund (IMF)-led financing.
“One of our Real Effective Exchange Rate (REER) models – the 22-year model which corresponds to a period when oil averaged $55/bl – implies fair value for the naira at N370/$, which via inflation should become N400/$ by end-2017.
“At the parallel rate of NGN500/$, Nigeria has the cheapest currency in Africa, and even at NGN450/$ it would still rival Egypt at EGP15.8/$ (the third cheapest in Africa).
“Given this, a full float of the currency would likely attract billions of dollars to Nigeria, similar to how Egypt has attracted $9 billion since its float in November.
“The vast majority of Nigerian and foreign potential investors ignored Nigeria in 2016 due to exchange rate difficulties, but rising oil prices and production (double the 0.9mbpd 2016 lows) suggest some opportunities may emerge in 2017.
“A best-case scenario is very unlikely, but some frontier investors may well be able to find value in the country at an oil price of $55/bl and an exchange rate of N450-500/$.”
*Obinna Chima – Thisday