A combination of speculative attack against the naira in the parallel market and activities in the newly introduced Investors and Exporters (I&E) forex window are impeding further decline in the parallel market exchange rate below N385 per dollar.
Prior to the 100 per cent increase in dollar supply to BDCs, from $20,000 to $40,000 per BDC, the parallel market exchange rate dropped to N380 per dollar.
Thus the expectation was that with the increase in the volume of foreign currency available to the market, the dollar will, by now be trading at N375 per dollar or less in the parallel market. Contrary to this expectation, however, the naira depreciated to almost N400 per dollar before appreciating to N390 two weeks ago and N385 per dollar last week.
BDC sources who spoke to Financial Vanguard blamed this development on speculators, who they claimed “are doing everything possible” to resist further appreciation of the naira in the parallel market.
“They have lost money but they are using every strategy possible to ensure they do not to lose more money,” said Aminu Gwadabe, President Association of Bureaux De Change Operators of Nigeria.
He averred that there is enough liquidity in the BDC segment, and that the problem in the parallel market is speculators who are deliberately buying up dollars to resist decline in the parallel market exchange rate.
“Anytime there is decline in the rate, they move in to buy up dollar from the market. They had bought when the rate was N480 per dollar and lost money. But they hope that the rate will go up again. So they are resisting further naira appreciation in the parallel market.”
“Added to this is the new investors’ window created by the CBN, where the rate is freely determined and the dollar is trading at N400 per dollar. This dollar rate in the window is influencing the parallel market rate, and discouraging further appreciation of the naira in the market”, he said
On the way forward, Gwadabe called on the CBN to increase weekly dollar sales to BDCs by 120 per cent to $100,000 per BDC. “It will crash the parallel market rate. They should just try it”, he said.
CBN limits access to SME forex to one BVN
Meanwhile, the Central Bank of Nigeria (CBN) has restricted access to the Small and Medium Enterprises (SME) foreign exchange window to one Biometric Verification Number (BVN) per $20,000 per quarter.
Head Treasury sales & Derivatives Marketing, First Bank of Nigeria Limited, Mrs. Adeola Abioye, disclosed this during the FirstBank/SME engagement forum on the CBN’s forex window themed, ‘FX for SMEs Simplified’.
The bank organized the forum to provide SMEs with the information needed to be eligible to access the CBN SME FX window.
Highlight of the forum was an interactive session, where participants asked questions on the issues around the eligibility and ways to access the CBN forex window.
Responding to enquiries about details of the window from customers, Adeola said: “For multiple SMEs with one person, with one BVN, what we have seen, because initially what we thought is that as long as the business names are different, each of those business names should be entitled to $20,000 per quarter but what we have seen so far is that it is more tied to a BVN. So a BVN number that is servicing multiple SMEs will only be entitled to $20,000 per quarter.”
However, First Bank’s Chairperson, Mrs. Ibukun Awosika, encouraged SMEs to participate in the CBN’s SME forex window, saying it is an opportunity to reduce their cost of operations.
“A lot of people are afraid of the official foreign exchange market. For a lot of SMEs, your first thinking when you need FX is mallam. But if you are smart business person, in an environment where cost is already high, you are looking for an opportunities to reduce your cost, that is why what I will do, and every opportunity that you have, I thought you should to reduce your cost in a sustainable manner, you should take that advantage, that is why you decided to remain. Now between N360 and N390 or whatever the rate would be, you will always be in a better position with CBN rate. So we wanted to make sure that SMEs understood the opportunities”, she said.
Scarcity of funds to intensify
The prevailing scarcity of funds in the interbank money market will persist this week with cost of funds rising further. In its preview of the market for this week, Cowry Asset Management, a Lagos based investment firm, said: “This week, there will be treasury bills auctions on Wednesday, 17 May 2017, via primary market, viz: 91-day bills worth N32.436 billion, 182-day bills worth N22.824 billion and 364-day bills worth N55.683 billion. These will be offset by maturing treasury bills worth N122.51 billion via primary market, viz; 91-day bills worth N32.436 billion, 182-day bills worth N34.39 billion and 364-day
bills worth N55.683 billion. Hence, we expect strain in financial system liquidity and resultant increase in interbank rates.”
Reviewing development in the money market last week, analysts at Afrinvest Plc, a Lagos based investment firm said: “Financial system liquidity trended higher all week, as such, we saw a downtrend in money market rates on all trading days of the week save for Wednesday and Friday owing to a debit from the May bond auction conducted by the Debt Management Office (DMO). Financial system liquidity opened the week at a positive balance of N165.0bn, up from the previous Friday’s close of N91.1billion, thus Open Buy Back and Overnight Rate settled at 16.7 per cent and 17.9 per cent respectively on Monday, down 1.5 per cent and 1.4 per cent.
The CBN floated OMO auctions on all trading days save for Monday, selling a sum of N76.6 billion of with stop rates ranging between 18.0 per cent and 18.6 per cent as investors showed significant interest in long tenured OMO instruments.
By midweek, Open Buy Back (OBB) and Overnight rates advanced 0.7 per cent and 1.7 per cent to 15.0 per cent and 15.6 per cent before shedding 1.5 points and 2.6 points respectively, owing to OMO maturity of N87.0bn. Rates eventually settled at 27.5 per cent and 29.5 per cent on Friday, indicating a 9.3ppts and 10.3ppts increase week-on-week (W-o-W) respectively.