NAIRA FALLS TO ALL-TIME LOW AT N202 TO US DOLLAR; The Naira exchanged at an all-time low of over N200 to the United States dollar yesterday, at the parallel market, after which the Central Bank of Nigeria (CBN) stopped, with immediate effect, sale of dollars (forex) through the Retail Dutch Auction System (RDAS) and interbank to Bureau De Change (BDC) operators. In Lagos, BDCs were trading the naira at between N200 and N202 per one US dollar after the news of the circular became public. In Abuja the value hovered around N196 to N198 a dollar. This is the lowest rate recorded in more than a decade; data from the CBN has shown. In a circular released, the apex bank said the bank took the decision to curb speculative demand in the forex market and to protect the foreign reserve. The CBN had in a circular to authorised dealers signed by Director, Trade & Exchange, Olakanmi Gbadamosi, said the weekly sales of forex to BDCs would be sustained by the CBN based on the liquidity needs of the market. He explained that the regulator took the decision based on ongoing review of developments in the foreign exchange market and the need to check speculative demand in the market. “Both at the Retail Dutch Auction System (rDAS) and the interbank fund, the dollar should henceforth be used strictly for funding of letters of credit, bills for collections and other invisible transaction, subject to appropriate documentation as provided by extant regulations. “Consequently, rDAS and interbank funds should no longer be sold to BDCs and other authorised buyers. Meanwhile the weekly sale of forex to BDCs will be sustained by the CBN based on the liquidity needs of the market.” CBN said. Reacting to this, Mr Victor Ogiemwonyi, managing director of Partnership Investment said the management of a nation’s currency exchange rate is a critical monetary policy function of the Central Bank of Nigeria (CBN) and it has dire consequences on economic activities in the medium and long term. “However, it is always a very difficult exercise to keep a tab on the nation’s currency; hence the reason why many industrialised countries opted for the ‘float’ exchange rate mechanism where the currency value is market determined.” He said although the ‘semi-fixed’ or ‘managed float’ exchange rate mechanism adopted by Nigeria has a lot of advantages, it had been at the detriment of the nation’s foreign reserves, adding that in the present day, “it appears that no country has been able to successfully defend its currency. A clear example is that of Switzerland which recently let go of the peg on its currency.” “The apex bank devalued the Naira in November last year in order to ensure appropriate value for the currency. We believe that devaluation of the Naira has potential to prevent round- tripping and protect local industries among others. However, it appears that the CBN is currently over- protecting the naira value and thus making it artificial while also depleting the nation’s foreign reserve in defending the naira exchange rate. Since the value of the foreign reserve essentially determines the country’s capacity to borrow internationally and to support our international trade, the continuous haemorrhaging of the reserves is not in the best interest of the country,” Ogiemwonyi said. He said while keeping the managed float, he believed that the currency should be allowed a wider band, say up to N200/US$. “The CBN may need to intervene if the new band is breached. We believe that at N200, it would become unattractive for speculators to engage in any profitable business that requires hard currency. While imports could become more expensive, we believe that it portends significant opportunity for consumers to consider local substitutes. A wider exchange rate band may also help exports as local producers earn more from their exports.” Also speaking against the backdrop of retaining exchange rate among others by the Monetary Committee of the Central Bank of Nigeria, chief executive of Financial Derivatives Company Limited, Mr Bismarck Rewane, said the “jitters are likely to continue in view of the apparent shallowness of the foreign exchange market in Nigeria and the currency pressure will not abate.” He noted that the decision to leave all parameters unchanged was not surprising to the market, adding that “any move would have been politically inexpedient and wrongfully misinterpreted as a ploy. “Even though there were fears that the CBN might have been pushed into making some changes by external pressures especially the J.P. Morgan negative watch index on Nigeria but the MPC stood its ground.”
Posted on: Sat, 24 Jan 2015 06:13:50 +0000
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