Following predictions by analysts that there is going to be further devaluation of the naira as the oil price decline persists, the public and dealers in foreign exchange market started acting out of the normal.
The Central Bank of Nigeria (CBN), through the Monetary Policy Committee (MPC) in November 2014, moved the Retail Dutch Auction System (RDAS) mid-rate to N168 from N155, and the band around it widened to +/-5 percent.
Renaissance Capital (Rencap) had last month said another round of naira devaluation from N168 per dollar to N200 per dollar was imminent. This is as Bismarck Rewane, CEO, Financial Derivatives Company, said the decline in oil prices will persist and lower oil prices will likely be sustained in H1’2015.
Consequently, the market began to experience unnecessary demand for foreign exchange, leading to shortage of same by speculative dealers.
In trying to calm the nervousness about the development in the foreign exchange market, the apex bank last week met with about 300 business leaders in Lagos. After the meeting, stakeholders in the foreign exchange market as well as business community, who were nervous about current challenges in the economy, went home with relief after receiving assurance from Godwin Emefiele, governor of the CBN, of the successful management of the situation.
“What the CBN governor said today was that we should not panic. We should understand that while the country is going through challenges, which is very obvious to everybody, panicking is going to make it worse,” Foluso Phillips, chairman/CEO, Phllips Consulting, told BusinessDay in an interview after the meeting.
Keith Richards, director of a number of Nigerian institutions and businesses, saw the NESG/CBN breakfast meeting as a welcome development, given the nervousness about the economy during an election period and the backdrop of plummeting oil prices and the naira’s subsequent depreciation.
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There he rehearsed some policy responses to the ongoing economic development. Such responses include reclassification of eligible goods and services at the Retail Dutch Auction System Window, conduct of special intervention in the foreign exchange market to stabilise rates, pre-qualification of customer FX bid applications to forestall frivolous demand, and re-capitalisation of BDC sector to streamline its operations and enhance transparency.
Other responses are reduction in the amount of weekly forex cash sales to BDCs but recently increased to $30,000 weekly, temporary downward review of banks’ foreign currency trading position limit to 0 percent, but adjusted at 0.5 percent of shareholders funds unimpaired by losses to prevent speculative activities, and introduction of maximum utilisation period of 72 hours for inter-bank funds to prevent hoarding of foreign exchange.
Emefiele was concerned about some persisting imbalance in the structure of the economy, asking why the country should continue to import toothpicks, tomatoes paste, furniture, rice, fish, sugar, among others.
His key message was there was no need to panic, people should go about their business in an orderly manner. He said that there should be an end to front loading by banks, speculators betting on the naira will lose their money.
The governor said the CBN will not hesitate to suspend dealership licences of banks fuelling speculative demand and involved in forex malpractices as well as infractions, saying “unfolding scenario is not new to the bank as a similar development was witnessed during the GFC,” while calling on all stakeholders to join hands with the CBN to address the threats and risks.
Speaking further, he said: “The bank will continue to monitor developments and respond appropriately as the need arises. Successful management of the current situation requires effective collaboration among all stakeholders.”
In his remark at the event, Pascal Dozie, founder, Diamond Bank and founding chairman, NESG, was concerned that a lot of people in the country who needed to hear what the CBN governor was saying were not present. Specifically, he said the “decision makers should know and understand what you are saying. If the fiscal side is not responding, there is going to be pressure on the CBN.”
Also commenting on the development, Aliko Dangote, president, Dangote Group, opined that there may be the need to make an example of at least one bank, by suspending its operating licence, adding that this would help keep others in check.
He admitted that by 2018 Dangote Group would be the largest single seller of foreign exchange after the CBN, saying by 2017 Nigeria would be the largest exporter of ammonia and urea.
“We have been spoilt. We have wasted years of high oil price. When you face adversity, the best usually comes. So, let us seek ways to make this happen,” Jim Ovia, founder of Zenith Bank, said at the meeting.
The CBN governor had in the last Monetary Policy Committee (MPC) said, “but at this time, the naira is appropriately priced and there is no need for anybody to worry that there will be devaluation,” and therefore sought the collaboration of stakeholders to ensure the economy was improved.
Looking ahead, he said the continuing deterioration in oil prices would have negative impact on Nigeria’s oil export earnings and public revenue.
According to him, volatility in other commodity prices could weaken resource inflows needed to promote financial stability and inclusive growth, while inflation is expected to be under control in 2015.
