• Friday, March 29, 2024
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Nigerians buy dollars to hedge uncertainty amid FG inaction

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The currency of Africa’s top oil producer fell by 2 percent at the black market to N367 Tuesday from N359 a day earlier as Nigerians piled into the dollar to hedge against a possible devaluation of the naira, amid a lack of reassurance from the Federal Government over the growing economic uncertainty.

Despite clawing back some of its 24 percent loss Monday, rising 9.75 percent to $37.71 per barrel Tuesday, Brent crude remains below Nigeria’s budget benchmark of $57 a barrel, piling pressure on Nigeria at a time of weak fiscal and external buffers.

Fears over a second naira devaluation in four years have heightened since the plunge in oil prices which has led to dwindling export revenue and fast depleting foreign-exchange reserves.

The plunge in oil prices and falling reserves could curb the central bank’s ability to support the currency. Nigeria has been here before, when it devalued the naira by some 40 percent after oil prices bottomed in 2016.

The currency also fell marginally to N366.75 per dollar from N366.71 a day before at the Investors and Exporters window.

“There’s a huge demand for dollars at this time as investors sell-off Nigerian equities and try to hedge against a currency devaluation,” a fund manager who did not want to be named said.

“The CBN doesn’t have the external buffers to fight an oil-induced global financial crisis and that raises all sorts of questions over the stability of the naira,” the person said.

The CBN’s reserves have decreased by 20 percent in the past two years to the lowest since November 2017 at $36 billion, and may soon reach the $30 billion threshold set by Governor Godwin Emefiele for the country to consider a devaluation.

Emefiele told investors late last year that it would take reserves of $30 billion and oil prices at $45 to re-consider its foreign exchange (FX) policy.

Fitch said Tuesday that the collapse in global oil prices, if sustained, could affect the sovereign rating of Nigeria and other countries who are net exporters of oil, particularly those with fixed exchange rates.

“With oil prices likely to stay low for some time, countries that are in a somewhat vulnerable external position and have a fixed exchange rate are of course particularly vulnerable,” Jan Friederic, Middle East and Africa sovereign analyst told Reuters.

Fitch, S&P’s and Moody’s have all downgraded Nigeria this year citing low oil prices.

Rising fears over a possible devaluation, despite modest gains in the oil price Tuesday, is also hurting Nigerian stocks which recorded their biggest sell-off in 10 years on the day.

The Nigerian Stock Exchange All Share Index slumped 4.9 percent by the close in Lagos, the sharpest decline since March 2010, and falling for a third day to a four-year low.

Bank stocks, the most liquid sector on the exchange, saw the worst of the sell-off, tumbling 13 percent, the most since 2012 and stretching their losses over the past three days to 23 percent.

Nigeria’s second-biggest stock by market capitalisation, MTNN closed at the lowest price since its listing in May 2019, to join in Tuesday’s rout.

More than half-a-trillion naira was wiped from the stock market on Tuesday.

“The market is choreographing where people think the economy is headed,” said Wale Okunrinboye, Head of Research at Lagos-based Sigma Pensions Ltd.

There was also a sell-off in the open market operations (OMO) market as foreigners drove yields upward by 17bps to 14.9 percent. Investors also dumped Treasury bonds which closed on the day at an average yield that was 35bps higher at 10.7 percent.

“As oil prices struggle to trend upwards amid no respite for the COVID-19 outbreak, we expect sentiment to remain bearish in the next trading session,” said Afrinvest in a note to client.

GTB already at a 39-month low slid further by 10 percent to N19.95 a unit.

Nascon, Dangote Sugar, Fidelity Bank, and Neimeth all lost 10 percent in the day with all major sectorial indices closing in the red.

Amid the ongoing carnage there has been little or no statements or response from the Federal Government, except setting up a committee to look into the matter, even as other countries move to reassure investors.

The Bank of Russia Tuesday readied its defences against further market turmoil, bringing forward foreign-currency sales after the rout in oil prices made the ruble the worst-performer globally.

The decision to start the foreign-currency sales early is aimed at “increasing the predictability of the actions of the monetary authorities and reducing volatility on financial markets amid significant changes in the world oil market,” according to a website statement from the central bank.

The government will also halt its weekly local-bond auctions in order to avoid “excessive pressure” on debt markets, the Finance Ministry said in a statement on Tuesday.

United States President, Donald Trump told Republican senators on Tuesday that he wants a payroll tax holiday to help cushion the fallout from the global slowdown, the Chinese government is also preparing an economic stimulus, while the European Central Bank said it is ready to take ‘targeted’ action to address the economic impact and the Bank of Japan has signalled it will inject liquidity into markets and hinted at greater asset purchases.

 

LOLADE AKINMURELE & ADAMS SEGUN