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Banks halt trading on Naira as currency exceeds band

Brewing up a mess in Nigeria with a controversial Naira rebrand

Deposit Money banks yesterday halted trading in the local currency, the naira, after it exceeded its daily circuit-breaker of N200 to the dollar band.

Analysts said last night, that renewed pressure on the naira which saw it drop by more than two percent, occasioned by fears that the postponement of this week’s election could trigger a constitutional crisis was responsible.

However, Ibrahim Muazu, CBN’s Director of Corporate Communications explains that exchange rate volatility happens by seconds, adding that it is usually caused by unexpected behaviour by market dealers.

“One of the measures to addressing this challenge is intervention. If the CBN has not done anything, the exchange rate would have gone higher than what we had,” he said last night on phone.

“We hope that the rate will come down tomorrow”, (today) Muazu added.

Johnson Chukwu, managing Director, Cowry Asset Management Limited, said that it was a s a result of irrational behaviour or fear on the part of  dealers considering the uncertainty in the market that made them quote outside the band that led CBN to temporarly stop trading.

Consequently, they are calling on the Federal Government to take immediate action to resolve the uncertainty created in the foreign exchange market, which led to a shut down of the interbank market after the naira exchanged for N205 against the US dollar, reaching upper limit of its circuit breaker, analysts have said.

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BusinessDay gathered that leading deposit money banks on Wednesday halted trading and resumed by 2pm after traders held an emergency meeting.

The local currency traded at a record low of 204.25 to the dollar in the morning of Wednesday but later moderated to exchange at N200.15 after two oil companies – Total and Shell sold some amount of dollars.

Consequently, after trading on Wednesday, the naira lost N0.05k/$ as it closed at N200.15k/$ compared to N200.10k/$ the previous day.

Analysts say the need to float the naira has become apparent, as they expect it to go to N220/$1 before it stabilises.

Kunle Ezun, analyst at Ecobank Nigeria, told BusinessDay on phone, that the naira improved after the two oil majors sold dollars and that helped calm the anxiety in the market.

Meanwhile, the Central Bank of Nigeria (CBN) may have offered some amount of dollars to some deposit money banks at the rate of N168/$ at the Retail Dutch Auction System (RDAS).

The naira pressure being driven by the combination of a tumbling oil price and a rise in political risk, highlighted last Saturday, when authorities pushed back the Feb. 14 presidential election by six weeks, blaming an Islamist insurgency by Boko Haram militants.

Last year the Central Bank spent an average of $20 million a day defending the naira, burning through 20 percent of its reserves in an attempt to offset the halving of the oil price. Crude oil accounts for more than 90 percent of Nigerian foreign exchange, Reuters reports.

The naira is officially pegged at 160-176 against the dollar after an eight percent devaluation in November but it has rarely traded within that range, and most analysts reckon authorities will have to devalue again.

At the money market on Tuesday, the overnight tenor of the Nigeria Inter-Bank Offered Rates (NIBOR), which is the temporary rate used by banks to meet immediate liquidity needs fell to 15.41 percent from 65.96 percent the previous day, about 50.54 percent drop.

Dealers said a N30 billion budget allocation to some government agencies was also credited through the banking system, boosting liquidity.

Banks’ balance with the Central Bank stood at a credit of N123 billion on Wednesday, from 52.3 billion naira in credit previous day.

The Central Bank has been tightening liquidity and intervening directly with dollar sales to commercial lenders to support the ailing naira, hit by falling oil prices.

Hope Moses-Ashike