Increased dollar demand triggers new Naira fall
The rising demand for scarce dollar by importer has triggered fresh fall in the value of naira at the parallel market, popularly known as the black market.
Naira fell to a new low of N527 per dollar, the lowest since the Central Bank of Nigeria (CBN) stopped dollar sales to the Bureau De Change (BDC) operators in July 27, 2021 due to foreign exchange infractions.
Traders told BusinessDay on Tuesday that the demand for dollar was coming mostly from importers who could not access the greenback from the banks due to documentation issues.
Access Bank plc said in a note on Tuesday that customers are required to return purchased Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) to their bank within two weeks from the day of purchase if not utilised for the intended purpose or if for any reason the intended trip is cancelled.
The local currency fell sharply to N525 to the dollar on July 28 after the CBN announced that it would discontinue the sale of dollars to the retail Bureaus as a result of foreign exchange infringements.
Reacting to the recent depreciation of the Naira at the black market, Olusegun Akintunde, an analyst at Polaris Bank Limited, said the CBN’s foreign exchange control measures are working as forex round-tripping has reduced.
He noted that some black market operators who used to get dollars from the BDCs could no longer do so since the CBN has stopped dollar sales to that market segment, adding that demand still remains amid dollar shortage.
The lack of improvement in the latter, despite the sharp rise in oil prices YTD, is particularly concerning, said Mohamed Abu Basha, head of macro economy – EFG Hermes, Investment Banking and the leading financial partner in Frontier Emerging Markets (FEM).
“We direct our focus to the upcoming Eurobond issuance – planned for September – as it is a potential trigger for much-awaited FX adjustment. As we mentioned in our previous reports, we were looking forward to the International Monetary Fund (IMF)’ Special Drawing Rights (SDRs) allocation and Eurobond providing valuable ammunition, therefore enabling the CBN to bring FX markets under control,” Basha said.
The SDR allocation took place earlier this week, boosting reserves by the equivalent of $3.3bn. The upcoming Eurobond issuance, likely to be around $3-5bn, would potentially mean that a $7bn reserve boost would be available to the CBN.
“We anticipate the CBN to use this by devaluing the Naira to N430/440, pushing the parallel rates (currently trading at N522) to converge to the said range.
We believe the devaluation, which would still add some inflationary pressure, should be accompanied by a tightening of monetary policy in order to bring interest rates to levels that are attractive to foreign investors,” Basha said in a note made available to BusinessDay.
The Federal Government of Nigeria had in May 2021, disclosed its plans to issue over $3 billion in Eurobonds as international capital markets (ICM) open up and interest rates decline.
The government had planned a Eurobond issue early last year after its sixth sale in 2018, but it decided to defer the 2020 sale due to market turmoil caused by the COVID-19 pandemic.
President Muhammadu Buhari had in a letter to parliament sought approval to raise the sum of $6.183 billion from a combination of sources.
It is estimated that Nigeria’s borrowing will exceed N35.5 trillion before end of the year, following the recent approval by Senate of a fresh $6.18 billion external loan request by the executive.
At the Investors and Exporters (I&E) forex window on Tuesday, naira appreciated by 0.13 percent as the dollar was quoted at N411.08/$ as against the last close of N411.63/$ on Monday, data from the FMDQ indicated.