Senior Nigerian bankers say currency speculators are now beginning to bring out the foreign exchange they are hoarding to the market and selling, according to the Economist Intelligence Unit, EIU.
It is seen as reversing the speculative pressure on the Naira since the Central Bank stopped the sale of foreign exchange to bureau de change operators in July but the market still has a long way to go to stabilize.
In its December 6 report, the EIU said, “the spread between the official NAFEX exchange rate and the black market widened sharply in the following months, even as foreign reserves increased through a US$3.3bn SDR allocation from the IMF in August and a US$4bn Eurobond sale in September.”
According to the report, “the CBN now appears to be intervening more heavily, with a reserve drawdown of US$600m (1.5%) in the past month. A stabilising market is, according to the committee, causing speculators to sell foreign exchange that had allegedly been hoarded.”
Read Also: FX market opens with naira gaining 0.61% on dollar inflows
This is expected to give support to the naira although “there is still a parallel market premium of at least 30%, making illicit arbitrage an irresistible opportunity for some,” the EIU report said.
The EIU said, “another test to our assumption lies in how a planned end to fuel subsidies in early 2022 plays out. Nigeria’s national oil company is the sole petrol retailer because of the subsidy, and engages in crude‑for‑fuel swaps that conserve foreign exchange.
“If the reform goes ahead (not our core forecast so close to an election), petrol will be imported by private marketers exclusively using hard currency. However, with a new mega-refinery coming onstream in 2022, which has the potential to eliminate petrol imports, the CBN may in any case decide to hold out.”
Early in July, Nigeria’s Central Bank stopped selling hard currency to bureaus de change (BDC) operators. New BDC licences were also suspended. The CBN said it will instead sell foreign exchange only to commercial banks, transacted in the investors and exporters (I&E) window at the official exchange rate (the Nafex)
The CBN claims that BDCs had been engaged in rent-seeking behaviour, supplying large volumes to single clients (inviting arbitrage opportunities for resale on the parallel market), rather than distributing the foreign exchange sold to them by the CBN to retail customers in small transactions.
The order was meant to direct foreign-exchange transactions worth billions of US dollars a year to the official I&E window and marked further consolidation of the foreign-exchange market—a process long advocated by the IMF
