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Scarred Investors Want Proof Naira Will Float for Real on Window – Bloomberg

Nigeria’s latest attempt to ease the dollar shortage choking its economy is dependent on traders trusting the central bank.

The monetary authority opened a foreign-exchange window for investors and exporters Monday where the naira trades between the interbank rate and the black-market rate, which many Nigerians use to access dollars. In the weeks before the opening, Governor Godwin Emefiele told senior bankers that he would tolerate a weaker naira and allow the market to determine the rate within the new window, according to a person who attended the meetings.

While the initial market reaction showed investors are optimistic the platform will be successful in bringing hard currency into Nigeria — bank stocks rose and naira forward contracts priced in a weaker currency — policy makers still must demonstrate that they’ll allow free trading. Investors have been disappointed before.

Last June, the central bank ended a 16-month currency-peg and promised to float the naira, but it has traded near 315 per dollar since August. That’s about 25 percent stronger than its black-market price of 390.

“If this is going to be market-determined, that would be a great positive,” said Razia Khan, the chief Africa economist at Standard Chartered Plc in London. “Given the false start we had in June last year, there’ll be a certain amount of caution initially.”

Standard Bank Group Ltd. analysts expect an initial “sharp but unsustainable” decline in the naira as investors and companies try to clear their unmet demand for dollars of about $4 billion. If that happens, the central bank may start manipulating the rate again, which would discourage inflows.

“What is on paper may not actually be what is practiced,” Standard Bank’s Lagos-based Ayomide Mejabi and Phumelele Mbiyo in Johannesburg said in a note Monday.

What’s Happened?

Unlike Egypt, which floated its pound in November when it was also desperate for hard currency, Nigeria’s central bank has introduced multiple exchange rates and sold forward contracts to meet demand for dollars. But those measures haven’t diminished the need for a black market to buy the greenback.

The central bank says the separate window will help “deepen the foreign exchange market and accommodate all foreign-exchange obligations.” Those allowed to sell dollars include include portfolio investors, exporters, banks and the regulator itself. Though trades are meant to be done on a willing-buyer, willing-seller basis, the central bank says it can intervene.

The FMDQ OTC Securities Exchange, a Lagos-based trading platform, will publish daily rates based on a poll of banks, with Monday’s closing rate set at 377.1 per dollar.

Why Did the Central Bank do This?

Nigeria has suffered from a dearth of foreign exchange since the price of oil, its main export, plunged in 2014. The central bank’s imposition of capital controls and a currency peg only worsened the crisis, according to investors, who have pulled money out of the country in the past two years. The government and central bank need them back to revive the economy, which shrank last year for the first time since 1991.

“There was acknowledgment from policy makers that greater flexibility in the FX regime was needed and that the existing system was hurting growth,” Khan said.

Will it Work?

Traders would prefer Emefiele to free the existing interbank market rather than create a separate exchange rate. But JPMorgan Asset Management says investors may be enticed into the market if they’re confident there’s enough liquidity for them to exit.

“It’s early days to gauge how effective the new window will be,” Diana Kiluta, an emerging markets debt portfolio manager at JPMorgan Asset Management in London, said in an emailed response to questions. “If indeed foreign investor flows can consistently clear in the window and there is some transparency around price determination, this could begin to restore some confidence.”

What are the Dangers?

Nigeria’s President Muhammadu Buhari and Emefiele have consistently criticized those calling for a weaker naira, saying it would only accelerate inflation already at 17 percent and hurt the poor. That’s fueling investor skepticism that the central bank will allow a true float within the window.

Another danger is that it’s unclear whether oil companies, which generate the bulk of Nigeria’s export earnings, will be able to sell dollars in the window. Without them, the central bank may be left as the main supplier until foreign investors return.

“There are a number of things that need clarification,” Khan said.

Naira drops to 390/dollar, CBN sells fresh $246m – Punch

Oyetunji Abioye

The naira reversed some of the gains it recorded last week, closing at 390 against the United States dollar on the parallel market on Monday.

The local currency had closed at 380/dollar on Friday.

The naira has been hovering between 380/dollar and 410/dollar in the past two weeks as the Central Bank of Nigeria continues to intervene in the foreign exchange market to stabilise the exchange rate.

The interventions are aimed at narrowing the spread between the official and black market rates of the naira against the dollar.

The CBN has sold around $4bn since intervention began in February, according to analysts.

After touching an all-time-low of 520/dollar in February, the CBN had increased forex supply into the market to enhance the naira.

As a result, the naira appreciated to 375/dollar in March. However, following some speculative activities and other market dynamics, the local currency fell to 410/dollar two weeks ago.

Last week, the naira reversed the loss and rose to 380/dollar after the CBN increased forex supply.

Meanwhile, the CBN offered the sum of $246.2m to authorised dealers at the forex auction in the interbank wholesale window, the Small and Medium-scale Enterprises and invisibles’ segments on Monday.

A breakdown of the total offer indicates that the sum of $150m was auctioned at the wholesale window while the SMEs and invisibles got $52m and $44.2m, respectively.

The bank’s spokesman, Mr. Isaac Okorafor, confirmed the offer and sales, stating that the forwards sales would be concluded in the days to come.

He, however, added that the CBN would continue its weekly sale to dealers in the Bureau de Change segment this week in order to guarantee onward sale to end users.

He said, “The SME operators no longer have to patronise or source foreign through unofficial windows and no more pressure on either the BDCs or any other unofficial source with the opening of the special window.”

CBN must scrap multiple exchange rates, says Soludo – Punch

Oyetunji Abioye

A former Governor of the Central Bank of Nigeria, Prof. Chukwuma Soludo, on Monday highlighted steps the Federal Government needed to return the country out of the biting economic challenges and get back on the path of growth.

Soludo said policymakers must get the country out of the current multiple exchange rates’ regime and reduce the wide spread between the official and parallel market exchange rates of the naira to a maximum of three to five per cent.

The currency currently has about five exchange rates, according to analysts.

The former Governor of the Central Bank of Nigeria, who was the Chairman of the Economic Discourse organised by the Institute of Chartered Accountants of Nigeria, spoke in Lagos while fielding questions from journalists shortly after the event.

He pointed out that policymakers were expected to be taking bold steps that would navigate the country away from crude oil dependency to a non-oil economy on the long run.

Soludo commended steps taken by the CBN in the last few weeks to restructure the foreign exchange market, but stressed that there was still a long way to go to get the economic back on track.

The former CBN governor stated, “With regards to exchange rate, I can see quite some changes in the last few weeks. I think some steps are beginning to be taken, but it is still quite a long way to go to get to a stable and predictable level that eliminates the premium among the multiplicity of exchange rates.

“Nigeria must get out of multiple exchange rates and we must eliminate the premium, get it back on track at a competitive exchange rate regime. The uncertainty that is created by that is so enormous; and with the oil price rising and with the increase in oil earnings, this is the time to take bold steps and do the needful.”

On how policymakers can eliminate the multiple exchange rates and close the gap, Soludo said it was simple because the nation had done it before.

He said, “On bold steps, the template is not too far. We have done it before and it is just going back to it. If it (the template) is not broken, why mend it? Get back and eliminate the multiple exchange rate regime, eliminate the premium, or at least significantly reduce it to not more than between three to maximum of five per cent premium between the parallel and official exchange rates.

“On what it takes to do it, that is basically known. Get the public finance okay; I can tell you that with the momentum of what is going on in the rest of the world, by the end of this year, we should actually be having stocks of reserves in the range of about $50bn or $60bn.”

According to Soludo, getting the country out of the current economic recession is no big deal as bringing it back to growth.

He said in spite of government policies, the country would come out of the current recession.

He stated, “And getting Nigeria structured and reengineered towards non-oil economy, that again will require a lot more serious work. The recession is not the issue. We will get out of it in spite of government policy.

“I think this is a time Nigeria should actually be making hard decisions to transit away from an oil revenue economy. And that’s the serious work.”

Earlier, the ICAN President, Mr. Titus Soetan, had said that years of neglect and mismanagement had brought the country to its present parlous state.

Highlighting the purpose of the ICAN Economic Discourse, he said, “We took a stance that the challenges confronting us needed to be identified and articulated so that short, medium and long-term solutions could be found for them.

“This is what we sought out to do by inviting experts in various fields to this discourse. We need to hear from people who have the knowledge and expertise and who can share their wealth of experience on how to move on economically as a nation in view of the urgent need to reinvent the economic wheel of the Nigerian economy.”

The Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who was the guest speaker at the event, stated that the nation’s Gross Domestic Product would expand this year by 2.19 per cent and it would go through a stage of 4.62 per cent before getting to seven per cent by 2020.”

He, however, noted that this would be based on the assumptions that Nigeria would remain an exporter of oil, produce 2.5 million barrels of oil per day, and create six million jobs within the period.

“It also means we will increase the overall tax to GDP ratio, which is about five per cent now, to about 15 per cent, and the tax policy will be more efficient and the revenue will increase  to about N350bn annually,” Rewane added.

The panellists at the event were the Managing Director of Economics Associates, Dr. Ayo Teriba; Director-General, Lagos Chamber of Commerce and Industries, Mr. Muda Yusuf; a former Deputy Governor, CBN, Dr. Obadiah Mailafia; and Partner, PwC, Mr. Taiwo Oyedele.

Teriba, in his submission, noted that the Economic Recovery and Growth Plan of the Federal Government was triggered by the shocks occasioned by the recession and worsening of the inflation record.

He said, “Nigeria’s economic crises broke out in the course of 2016. We also had foreign exchange crisis, which broke out also in 2016. Perhaps, we should have separated the crisis response from the plan. Crisis response calls for urgency. Mid last year, the currency was devalued. So, we needed the crisis response, we don’t have the luxury.

“In economic policy, there are lags. Lags are well understood. After recognising there is a response lags, what should now be fashioned is the response. There is an action lag. When you have a recession and devaluation, you want to do your best to shorten the lags. Yusuf emphasised the need for the Federal Government to anchor its growth plans on the private sector, emphasising the role of private investments in economic growth.

Mailafia also stressed the importance of a conducive business environment to attracting foreign investors into the country in order to enhance growth.

Central bank injects $246.2m for wholesale, SMEs, invisibles – Today

The Central Bank of Nigeria (CBN) on Monday, April 24, 2017, offered the sum of $246.2 million to authorized dealers at the forex auction in the interbank wholesale window, Small and Medium Enterprises (SMEs) and invisibles segments.

A breakdown of the total offer indicates that the sum of $150 million was auctioned at the wholesale window while SMEs and invisibles got $52 million and $44.2 million respectively.

The Bank’s spokesman, Isaac Okorafor, confirmed the offer and sales on Monday, disclosing that the forwards sales would be concluded in the days to come.

He, however, added that the CBN will continue its weekly sale to dealers in the Bureau de Change (BDC) segment this week in order to guarantee onward sale to end users.

According to him, the Bank’s continued interventions in the different segments had guaranteed availability to individuals and business concerns.

He disclosed that the Bank was satisfied with the feedback it received concerning the response of Small and Medium Enterprises (SMEs) to access forex from the new CBN window.

He said the CBN was particularly determined to ease the challenges hitherto encountered by small manufacturers hence the move to provide them with easy access to forex.

“SME operators no longer have to patronize or source foreign through unofficial windows and no more pressure on either the BDCs or any other unofficial source with the opening of the special window,” he added.

It will be recalled that the CBN, also last week, created a Forex window for investors and exporters, which it named: “Investors’ & Exporters’ FX Window”.

The CBN circular, which announced the creation of the new window, disclosed that the purpose of the window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

Naira closes lower against the dollar at Parallel Market

Lagos, April 24 (FxMallam) – The Nigerian Naira on Monday closed lower against the United States Dollar at the parallel market after days of sustained strength.

This was in spite of the Central Bank of Nigeria’s continuous intervention at both the interbank market and Bureau De Change window.

The naira on Monday afternoon exchanged between N383 (buying rate) and N390 selling rate at the parallel market.

The naira had traded between N380 and N388 against the dollar last week.

The Pound Sterling and the Euro however remained unchanged closing at N498 and N413 respectively.

Trading at the interbank market saw the Naira closed at N306 to the dollar.

Nigeria central bank to sell $150 mln at currency forward – Reuters

LAGOS, April 24 (Reuters) – Nigeria’s central bank will offer $150 million in currency forwards at an auction on Monday, part of its efforts to narrow the spread between official and black market exchange rates and improve foreign exchange liquidity.

Traders, citing a notice from the central bank, said settlement will be between one week and 45 days. The sale will be through a wholesale auction to meet the forex demand from businesses.

The central bank has been intervening on the official market to try to narrow the currency’s spread with the black market rate. It has sold around $4 billion since intervention began in February, analysts say, a pace they doubt it can sustain.

In a circular cited by Reuters on Monday, the bank also said it will now allow investors to engage in foreign exchange trading at rates the buyers and sellers set, a move it hopes will increase the amount of dollars available in Africa’s biggest economy.

The president of Nigeria’s association of bureau de change said its group has already commenced consultations with some foreign investors with a view to increase dollar supply in the parallel segment of the market.

Aminu Gwadabe said retail currency bureaus are trying to attract more foreign capital with the cooperation of the central bank, to boost dollar liquidity and provide support for the local currency.

On the official market, the currency was quoted at 306 per dollar, while it was quoted at 381 per dollar. (Reporting by Oludare Mayowa, editing by Larry King)

 

Nigeria Said to Let Market Decide Naira Rate on Exchange Window – Bloomberg

Nigeria’s central bank will let the market determine the naira’s rate in a new foreign-exchange window for portfolio investors as the nation struggles to revive its economy amid a dollar shortage.

Governor Godwin Emefiele told senior bankers that he would tolerate the naira weakening in the window, which starts today, according to a person who attended meetings with the policy maker over the past two weeks. While the currency may depreciate to its black-market level, the central bank probably won’t devalue the naira’s official rate, the person said, declining to be identified because he wasn’t authorized to speak publicly.

Isaac Okorafor, a spokesman for the central bank, didn’t answer calls to his mobile or immediately respond to a text message.

Nigeria has suffered from a dearth of foreign exchange after the price of oil, its main source of revenue, collapsed. While crude prices have since risen, some investors say the central bank’s capital controls and attempts to stop the naira from weakening are exacerbating the crisis. The nation’s economy contracted last year for the first time since 1991.

The naira has traded at around 315 per dollar on the interbank market since August. The currency’s black-market rate plummeted to a record 520 against the greenback in February, but recovered to 385 after the central bank sold more than $2 billion in forward contracts.

FX Window

The foreign-exchange window will be for bond and stock investors as well as exporters, the central bank said in a statement late on April 21. The FMDQ OTC Securities Exchange, the Lagos-based trading platform, will publish the rate for the window, know as Nigerian Autonomous Foreign Exchange Rate Fixing, or NAFEX, around noon each day.

The Abuja-based regulator said it “reserves the right to intervene” in the window.

Nigeria central bank introduces FX trading window for investors – Reuters

By Chijioke Ohuocha

LAGOS, April 24 (Reuters) – Nigeria’s central bank will now allow investors to engage in foreign exchange trading at rates the buyers and sellers set, a move it hopes will increase the amount of dollars available in Africa’s biggest economy.

People or businesses who need dollars to repay loans, pay dividends, repatriate capital or settle trade-related obligations will be eligible for the new trading system, according to central bank circular seen by Reuters on Monday.

Trading will take place by phone, at rates set by willing sellers and willing buyers. The central bank will not provide the funds, but it will step in to buy or sell to keep the market orderly.

Dollars have been in short supply in Nigeria since the price of crude oil, the country’s main source of hard currency, plunged three years ago.

“The Central Bank of Nigeria, in a continuing effort to deepen the foreign exchange market and accommodate all FX obligations, hereby announces a special window for investors, exporters,” the bank said in the circular.

The purpose of this window is to boost liquidity in the FX market and ensure timely execution and settlement for eligible transactions.”

Nigeria has at least five exchange rates: the official rate, the black market, a rate for Muslim pilgrims going to Saudi Arabia, a retail rate set by licensed exchange bureaus and a rate for foreign travel and school fees.

The central bank last year lifted a temporary peg on the currency, but to protect its precariously low foreign reserves it introduced a convoluted exchange rate system that sees different buyers paying various rates for dollars.

The policy has masked pressures on the naira and stunted hard currency inflows as investors struggle to price naira assets, according to analysts.

The bank has been using the forward market to meet demand for dollars, making only tiny volumes available on the spot market and using those sales to influence the naira’s official value.

It said FMDQ OTC Securities Exchange will poll buying and selling rates to help with price discovery.

The naira was quoted at 306 to the dollar on the spot market on Monday and 385 on the black market. (Editing by Larry King)

 

CBN targets exchange rate stability, naira now 380/dollar – Punch

Oyetunji Abioye

The Central Bank of Nigeria on Sunday said it would continue to introduce measures to stabilise the foreign exchange market.

It also said that various forex initiatives it had introduced in recent weeks were beginning to yield results with stability recorded in the naira exchange rate.

The central bank had opened various windows to meet the demand for forex by Small and Medium-scale Enterprises, dividend remittances abroad as well as investors and exporters.

The spokesperson for the CBN, Mr. Isaac Okorafor, said the bank put in place the measures to ease the difficulties being encountered by the SMEs and other segments of the economy.

He said SME operators no longer needed to patronise or source for forex through unofficial windows.

According to him, the move has helped to reduce pressure on the Bureau De Change segment of the market.

Okorafor urged all participants in the forex market to cooperate with the CBN and abide by the regulatory guidelines aimed at ensuring hitch-free operations in the market.

It is uncertain if the naira stability will be sustained.

Some experts have doubted the CBN’s ability to wage the currency war against speculators.

The regulator has, however, assured market participants that with the external reserves currently at $30bn and crude oil hovering above $50/barrel, it will sustain the regular dollar injections.

Meanwhile, the naira closed flat at 380 against the United States dollar on Sunday, the same amount it touched on Friday, having reached 390/dollar on Thursday.

After touching an all-time-high of 520/dollar in February, the CBN had increased forex supply into the market to enhance the naira.

As a result, the naira appreciated to 375/dollar in March. However, following some speculative activities and other market dynamics, the local currency fell to 410/dollar two weeks ago.

Last week, the naira reversed the loss and rose to 380/dollar after the CBN increased forex supply.

Currency analysts told our correspondent on Sunday that the naira would record a very slight gain this week even as the CBN steps up its interventions in the market.

A currency analyst at Ecobank Nigeria, Mr. Kunle Ezun, said, “I think the naira may not appreciate significantly above 380/dollar. If there is a slight decline in forex supply, it may do around 385/dollar.

“For now, the naira may not gain significantly further than the 380/dollar until when the CBN chooses to shift the exchange rate for the invisibles.”

CBN to sell dollars to offset forex demand – The Nation

The Central Bank of Nigeria (CBN) at the weekend said it would offer dollar forwards to offset a backlog of foreign exchange obligations for manufacturers, airlines and fuel importers.

Traders said the dollars would be sold directly to businesses and were strictly for matured letters of credit obligations related to specific sectors.

“Authorised dealers’ accounts with the central bank will be debited in full for the naira equivalent of the dollar bid amount on a spot basis. The central bank will settle the bids through forward settlements of seven to 45 days,” the CBN said in a statement to lenders.

The central bank has been intervening on the official market to try to narrow the naira’s spread with the black market rate.

The naira was quoted at 315 per dollar on the official market on Friday, and at 385 on the black market. It traded at 410 a week ago.

The CBN has sold around $4 billion since it started intervening in the currency market in February, say analysts, who have expressed doubts the cash injections can be sustained.

The bank last Tuesday reduced the amount of paperwork that small and medium-size businesses must provide to buy dollars as part of an effort to improve liquidity and attract them away from the black market.