• Monday, June 24, 2024
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Naira ends week with 2.18% loss to dollar as market reacts to CBN’s policy

The five trading days foreign exchange market ended on Friday with Nigeria’s currency losing 2.18 percent to the dollar at the parallel market popularly called black market, as uncertainty gripped the market after the Central Bank’s decision on Tuesday.

The Central Bank of Nigeria (CBN) on Tuesday after the Monetary Policy Committee (MPC) meeting announced a decision to discontinue the sale of foreign exchange to the Bureau De Change (BDC) operators, a development that has led to significant drop in the value of the naira against the dollar.

Consequently, Naira closed the week at N515 per dollar on Friday compared with the opening rate of N504/$ on Monday on the black market.

Immediately after the announcement on Tuesday, Naira lost N1.00k as the dollar closed at N505 as against N504 on Monday at the same market.

There was a sharp drop in the value of the Naira to N525 on Wednesday as the market reacted to the decision of the banking sector regulator.

However, Naira strengthened to N520 per dollar on Thursday after the bank chief executives unanimously announced their support and readiness to provide foreign exchange to meet legitimate needs of the end users.

Nigeria’s currency on Friday strengthened further by 0.57 percent to N517 per dollar during the intraday trading and later closed at N515 per dollar.

At the Investors and Exporters (I&E) forex window, Naira ended the week with marginal appreciation of 0.01 percent to N411.44k on Friday as against the opening rate of N411.50k on Monday at the Nigerian Autonomous Foreign Exchange Market (NAFEX) or I&E window.

Naira closed at N411.67k per dollar on Tuesday from N411.50k quoted on Monday at the official market.

On Wednesday Naira appreciated marginally by 0.02 percent as the market closed at N411.60 per dollar as against N411.67/$ closed on Tuesday at the Nigerian Autonomous Foreign Exchange Fixing window.
The local currency weakened slightly by N0.07k to close on N411.67k on Thursday from N411.60k on Wednesday at the official market.

Market turnover declined by 13.19 percent to $121.08 million on Friday from $139.49 million recorded on on the opening trading day on Monday, data compiled by BusinessDay from the FMDQ indicated.

This is in spite of the dollar supply to the market by the apex bank within the week. The CBN injected $210 million into the inter-bank market within the week. A breakdown of the dollar disbursement showed that USD100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), USD55 million was allocated to Small and Medium Scale Enterprises and USD55 million was sold for invisibles.

Elsewhere, according to Cowry Asset Management, the Naira/USD exchange rate depreciated for most of the foreign exchange forward contracts: 1 month, 2 months, 3 months, 6 months and 12 months exchange rates rose by 0.17 percent, 0.21 percent, 0.30 percent, 0.19 percent and 0.03 percent to close at N413.70/USD, N415.55/USD, N417.79/USD, N424.01/USD and N436.43/USD respectively. However, the spot rate remained flat at N379.00/USD.

“Next week, as the stoppage of USD sales to the BDCs push more demand pressure to the parallel market, we expect Naira to further weaken against the greenback at the alternative FX Market segments, analysts at Cowry Asset said.

But bank CEOs have assured that the FX rate will come down. While responding to question on the exchange rate depreciating after the Central Bank’s announcement to stop dollar sales to Bureau De Change (BDC) operators on Tuesday, Segun Agbaje, Chief Executive Officer of Guarantee Holdco (GTCo), said “What we saw in the market on Wednesday and Thursday was an aberration.

The rate will come down. Very soon, you will buy at N423 or N425 at most”. He said people can start working in any bank branch to initiate their request.

Emefiele accused the BDCs of trading FX wholesale and selling the amount greater than USD 5000, in contravention of their licences, and Nigeria’s FX regulations.

The revised operational guidelines for BDCs states that the maximum amount currently for Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) per quarter is $4000 and $5000,respectively.

He said the operators are making efforts to dollarise the Nigerian economy as the Central Bank receives about 5,000 applications every month for BDC licence.

Emefiele said the BDCs have turned themselves away from their objectives and have now become agents that facilitate graft and corruption in the country.

“We cannot continue with the bad practices that are happening at the BDC market,” he said. The CBN governor was worried that several international organisations, embassies patronise BDC through illegal forex dealers to fund their institutions.

“We will deal ruthlessly with Nigerian banks that deal with illegal BDCs and we will report foreign organisations patronising them,” he said.

The CBN sells $20,000 weekly to over 5,000 BDCs to meet legitimate demand of the end users. However, going forward Emefiele said commercial banks will establish retail tellers to take on some of these functions.