The Naira fell by 200 kobo Tuesday, as the parallel market exchange rate rose to N180 per dollar from N178 per dollar on Monday. Confirming this development to Vanguard, Acting President, Association of Bureaux De Change Operators of Nigeria (ABCON) Alhaji Aminu Gwadabe said the depreciation was due to scarcity of dollars in the market. He said most of the banks are not selling dollars to BDCs hence aggravating the scarcity in the market.
This was corroborated by Managing Director/Chief Executive, HJ Trust BDC, Mr. Harrison Owoh. He said that parallel market rate rose from N177.3 to N180 per dollar because there is no dollar in the market. He said the banks are not selling to BDCs, and the two banks that sold, sold at N179 per dollar and N178.4 per dollar. He added that the depreciation of the naira is not limited to the dollar adding that it has been depreciating against the Euro and Pound in recent times too. He said the exchange rate of the Euro has risen to N220 from N117 last week. Owoh said that the market is overwhelmed with uncertainty about the exchange rate. “If fact we don’t know what is the rate of the dollar now”, he said.
Vanguard investigations reveal that the increasing scarcity in the market has prompted operators to resort to hoarding whatever foreign currency in their possession. It was gathered that BDCs that bought dollars from the CBN at N157 per dollar last week hoarded them, only to sell them this week at N179/N180 per dollar.
The Central Bank of Nigeria (CBN) yesterday bowed to banks’ demand for the removal of the 10 kobo margin limit imposed on intervention dollars.
Meanwhile, the Naira depreciated to N180 to the dollar at the parallel market in response to scarcity of dollars in the market.
Vanguard investigations reveal that at a meeting between the CBN and chief executives f banks yesterday, the CBN agreed to remove the 10 kobo margin limit on intervention dollars.
Intervention dollars are dollars sold directly to banks by the CBN to stabilise the exchange rate of the Naira in the interbank market. Three weeks ago, the CBN imposed 10 kobo margin limit on intervention dollars.
“Funds purchased through the CBN interventions should be utilised within two working days of delivery at a rate not more than 10 kobo above purchase rate. Consequently, intervention funds not utilised within two working days of delivery should be returned to CBN at the original purchase rate”, the CBN said in a circular signed by Mr. I.O Gbadamosi, Director, Trade and Exchange Department.
The limit however made the intervention dollars unattractive to banks and as a result they stopped purchasing the dollars from the CBN.
Investigation revealed that the banks deliberately shunned CBN’s request for the foreign exchange quotes or offer to sell intervention dollars.
This however frustrated efforts of the apex bank to curtail depreciation of the Naira in the interbank foreign exchange market, leading to N7.45 depreciation of the national currency last week.
To arrest this development, the apex bank called a meeting of chief executives of banks yesterday to discuss recent developments in the foreign exchange market and its effort to stabilise the exchange rate.
Vanguard reliably gathered that the banks CEOs made it clear to the apex bank the 10 kobo margin limit has to be removed for banks to purchase the intervention dollars.
While the meeting was in progress, the Naira continued to depreciate at the interbank market, with the interbank exchange rate rising to N177.3 per dollar by midday. It was gathered that this development and fears that the interbank exchange rate could hit N180 per dollar before the close of business yesterday prompted the CBN to accede to the request of the banks for the removal of the 10 kobo limit.
A senior foreign exchange dealer, who confirmed this development to Vanguard, said the decision to remove the limit was communicated to banks via the Reuters trading platform. In addition, the CBN and the bank captains agreed that the apex bank would continue to intervene in the interbank market.
Furthermore, the apex bank hurriedly sold intervention dollars to the banks, to arrest the free fall of the naira in the interbank market. The move proved effective, as the interbank exchange rate dropped sharply to N170 per dollar, before rising to close at N173.25.
How CBN’s policy aggravated depreciation of Naira
Since the beginning of the month, the naira has depreciated by N7.9 at interbank market, and N10 at the parallel market.
Interbank and parallel market operators attributed to this sharp depreciation to restrictions introduced by the CBN to curb foreign exchange demand at the official market.
On October 28, in addition to the 10 kobo margin limit imposed on intervention dollars, the CBN banned banks from selling the dollars to BDCs. Furthermore, on November 6th, the CBN excluded importation of six items from official foreign exchange, saying it would no longer sell official foreign exchange for the importation of the items. The items included electronics, finished products, information technology, generators, telecommunication equipment and invisible transactions. According to the apex bank, the items would henceforth be funded from the interbank foreign exchange market only. Thus the apex bank shifted demand for foreign exchange for importation of the six items from the official market to the interbank market.
The two restrictions combined together occasioned sharp increase in demand for foreign exchange in the interbank market, and scarcity of dollars in the parallel market. Though the CBN was selling intervention dollars to banks, banks could trade with the dollars because of the 10 kobo limit. This according to a foreign exchange dealer created a scarcity situation in interbank and the subsequent steady depreciation of the naira.
Naira would continue to depreciate
According to Harrison Owoh, except the CBN increase the dollar sale to BDCs, or allow banks to sell intervention dollars to them, the naira would continue to depreciate in the parallel market. “The $15,000 sold to each BDCs is inadequate to address the scarcity in the market. Once the CBN increases dollar supply to BDCs, the parallel market rate would fall significantly”, he said.
A senior foreign exchange dealer who spoke on anonymity however said the though the CBN would try to manage the situation, it is obvious that it would have to devalue the naira very soon. He said, there is increasing fears among foreign exchange dealers that the CBN surprise the market with a N15 depreciation of the naira at the official market. He said banks are already advising their customers who have dollar liabilities to move them into naira so as to avoid the severe impact of a sharp devaluation of the naira.
But a former CBN Director who confided in Vanguard said that the CBN can avoid a sharp devaluation by adopting some measures. “The CBN should limit its foreign exchange sales to a particular time of the day, and allow demand and supply to rule in the market to determine the official rate. The CBN can also use dollar accounts of some dollar earning MDAs like NNPC, NIMASA, to support the naira,” the Director said.
