- CBN to Sell Dollars in Special Auction to Clear Backlogs
The Central Bank of Nigeria (CBN) has asked banks to bid in a special currency auction to clear a backlog of dollar obligations that businesses owe, traders said on Wednesday.
The central bank asked commercial lenders to submit backlog dollar demand from fuel importers, airlines, raw-materials producers, and makers of agricultural chemicals and machinery for manufacturers.
In a notice to commercial lenders, the central bank said it would hold a retail foreign exchange auction on Wednesday to sell two- to five-month dollar forwards. The amount of dollars to be sold was unspecified, Reuters said.
Last December, the central bank sold around $1 billion on the forward market to clear a similar backlog of dollar obligations, in an effort to support production in Africa’s biggest economy.
Meanwhile, investors are lining up to buy dollar bonds Nigeria is expected to issue soon despite the country’s first recession in a quarter of a century, a currency crisis and budget shortfalls driven by low oil prices.
On the face of it, the $1 billion of bonds Nigeria hopes to sell by the end of March might seem unattractive, especially at a time sentiment towards African debt has soured after Mozambique missed a coupon payment.
But a Reuters report yesterday indicated that investors hungry for higher returns in a low interest rate environment reckon Nigeria’s benign debt levels, recovering foreign exchange reserves and a potential yield above seven per cent are reasons enough to look beyond the country’s economic woes.
“Nigeria’s starting position is one of low debt so if they price it attractively they will be able to get it done,” said Claudia Calich, who manages an emerging market bond fund at M&G Investments.
Nigeria’s Eurobond has been a long time coming. A year ago, Nigeria appeared to have shelved the idea in favour of a loan from China, but it embarked on an investor roadshow for the bond late last year in the United States and Britain.
Nigeria is Africa’s biggest economy, a member of the Organisation of the Petroleum Exporting Countries and vies with Angola for the position of top oil producer, but that also means it is very exposed to fluctuations in the oil market.
The last time Nigeria issued dollar-denominated bonds in July 2013, oil was comfortably above $100 a barrel but the slump in prices from $115 in June 2014 to just $28 a barrel by January 2016 has hurt the West African country’s economy.
Crude oil sales account for two-thirds of government revenue and about 90 percent of foreign exchange earnings so the price slide, coupled with a resurgence in militant attacks on oil facilities in the Niger Delta, have had a severe impact.
According to the World Bank, Nigeria’s economy probably shrank 1.7 percent in 2016, underperforming an average growth rate of 1.5 percent across sub-Saharan Africa and way behind high-flying economies such as Ivory Coast.
Foreign investment has almost ground to a halt, hobbled by a slide in the naira currency – which trades on the black market at about 40 percent below the official rate of 300 per dollar – and expectations the currency may have to be devalued again.
World Bank data shows net foreign direct investment tumbled to just over $3 billion in 2015 from nearly $9 billion in 2011 and the government needs to borrow $3.5 billion internationally this year to balance a record 2017 budget.
International lenders such as the World Bank and African Development Bank (AfDB) are also holding back on loans until Nigeria comes up with a plan to make its economy more resilient. Yet, bond investors seem undeterred.
They argued that a Eurobond issued in dollars will shield them from currency risk and, compared to its African peers, Nigeria has a low ratio of public debt to annual economic output, implying that default is not a worry.
Curtis reckons that Nigeria’s low debt ratios will allow it to borrow more cheaply than Ghana. Nigeria’s existing 2023 dollar bond yields about 6.7 percent, or 170 basis points lower than Ghana’s 2023 bond.
Egypt, which has a credit rating of B-minus/B3/B from the main agencies, was marketing $4 billion of Eurobonds in three tranches on Tuesday, offering a 10-year bond at 7.5 percent. Nigeria is rated one to two notches higher at B/B1/B plus.
Nigeria’s last 10-year bond sold in July 2013 had a 6.375 percent coupon but Exotix Partners head of fixed income research Stuart Culverhouse said a new issue would have to offer a yield of 7.0 percent to 7.5 percent.
“(Nigeria) might have to accept that people are charging more for them because of the situation. It could be a reality check,” he said.
If the country were to press ahead with reforms to alleviate pressure on the naira before issuing a bond, it could help lower the cost of borrowing, M&G’s Calich said.
Travellers to Access $4k , Businessmen $5K as CBN Boosts Forex Supplies
Nigerians travelling abroad can access a maximum amount of $4,000 foreign exchange from the banks following the Central Bank of Nigeria’s announcement to increase forex supplies.
Sources from some of the banks said those travelling on business trips could also access a maximum amount of $5,000 for each trip.
The CBN had said in a recent statement that it had concluded plans to increase the amount of foreign exchange allocated to banks to meet legitimate needs.
This followed the warning by the CBN Governor, Mr Godwin Emefiele, to Deposit Money Banks to desist from denying customers the opportunity to purchase foreign exchange.
The purposes to access forex included Personal Travel Allowance, Basic Travel Allowance, tuition fees, and medical payments as well as Small and Medium Enterprises transactions or for the repatriation of Foreign Direct Investment proceeds, the CBN had stated.
At a virtual Bankers’ Committee meeting last week, the bankers discussed how the CBN intended to assist with forex to ensure availability for the upcoming summer period and the return of students to school in September.
The CBN also said the BDCs would continue to have their weekly allocations.
The committee observed that the rates were going up.
It stated, “The CBN has said that all the banks must make available at all times and anyone who wants to buy BTA, PTA, medical fees, student school fees and all the eligible invisible purchases to ensure that Nigerians are not forced to go and queue in the parallel market.
“So what the Central Bank is doing is to encourage all banks to make sure that there is available forex at all times, and that his information should be communicated on all our platforms.
“We are asking our customers to come to the branches and for BTA, for example, present the required documents, which are basically your international passport, your visa, your valid ticket and fill up the form in the bank.
“And what we have been instructed to do is ensure that we don’t turn anybody back and that we should request from the Central Bank once we exhaust the forex that we have.
“The idea is to have a hitch-free summer period and the resumption for children to go back to school. The idea is to ensure there is less pressure on the forex and then the rates will come down.”
Speaking during the virtual meeting, the Group Managing Director, Access Bank, Herbert Wigwe, said, “I think again as part of the central bank’s role in terms of price stability and the need to support small and medium enterprises, there was a highlight of the need for banks to go and support SMEs who import small raw materials for them to set up their businesses.”
The Managing Director, Ecobank, Patrick Akinwuntan, said, “All banks are available to ensure forex need is met.”
Managing Director, Sterling Bank, Abubakar Suleiman, said the CBN had provided sufficient foreign exchange to meet the needs of all legitimate Nigerian travellers and therefore, the idea of going to any other market should not arise at all.
U.S Dollar Gained as Fed Shifts Interest Rates Hike from 2024 to 2023, Crypto Drops
The United States Dollar gained on Thursday after the Federal Reserve raised inflation expectations to 3.4 percent and moved the year it is expected to raise interest rates from 2024 to 2023.
Policymakers suggested that interest rates could be raised twice by late 2023 given “Summary of Economic Projections” (SEP) released on Wednesday.
The dollar index, which tracks the greenback against six major currencies, gained 0.63 percent to 91.103, its highest since May 6.
The jump was as a result of renewed interest in the American economy as growth is expected to hit 7 percent in 2021 despite the rising inflation. Similarly, economic conditions are projected to improve faster than initially predicted.
The Federal Reserve Chair Jerome Powell said “the economic conditions in the committee’s forward guidance will be met somewhat sooner than previously expected.”
“The interesting thing is that the Fed has gone beyond simply acknowledging that inflation is rising and that the U.S. economy has a lot of momentum, and it has essentially shifted to a much more hawkish stance in this set of projections,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
Powell said the central bank will maintain its $120 billion monthly bond-buying program to continue to support the economy but also suggested the possibility of pulling back on quantitative easing used to keep rates low.
“I think we’re back to talking about a mild rally in the U.S. dollar and the data becoming very important over the summer period prior to Jackson Hole and September’s meeting,” said Simon Harvey, senior FX market analyst at Monex Europe.
Billions Flow Out of Crypto Market Ahead of Better US Economy
Investors are moving money in billions out of the crypto market, according to Whale Alert reports. On Thursday, 26,999,9990 USDT valued at $26,999,990 was transferred from Binance to an unknown wallet while another 19,999,995 USDT transferred from Bitfinex to an unknown wallet.
Investors moved 20,000,000 USDT to Bitfinex; 55,180 Ether worth $134,030,121 from an unknown wallet to another unknown wallet and 55,000 Ether estimated at $133,389,506 was also transferred to an unknown wallet in the early hours of Thursday.
5,000 Ether worth $12,168,082 and 1,000 Bitcoins worth $38,953,357 were transferred from an unknown wallet to Binance. To see the rest of the money being moved out of crypto space visit Whale Alert.
Cryptocurrency market capitalisation dipped by 5.03 percent in the last 24 hours but has lost $898 billion from $2.523 trillion it attained on Wednesday, May 12, 2021, to $1.625 trillion on Thursday, June 17, 2021.
The plunge in cryptocurrency was a result of improving global economic outlook, especially in the United States of America, the largest crypto investing nation.
The unregulated crypto space is largely treated as a haven asset to avert disaster during the global downturn. Meaning, an improvement in the global economy will generally impact cryptocurrency capital inflow and overall performance. Investors King expects cryptocurrency to extend its decline in the third quarter.
CBN Raises Customs Forex from N381/US$1 to N404.97/US$
The Central Bank of Nigeria has raised the Naira exchange rate for cargo clearance from N381/US$1 to N404.97/US$1.
This was confirmed by Uche Ejesieme, the Public Relations Officer (PRO), Tin Can Island Customs Command.
The PRO explained that it was not the customs job description to raise the foreign exchange rate but that of the central bank.
The N24 difference has been implemented on the customs system managed by Web Fontaine.
Commenting on the situation, Kayode Farinto, the Vice President of the Association of Nigerian Licensed Customs Agents, said the increase would further escalate inflation on import goods and hurt consumers’ buying power given the present economic situation.
An importer, Gboyega Adebari, who was shocked at the decision said stakeholders will be greatly affected by the decision.
According to him, “When we went to assess a job this morning, we were told that the exchange rate has been increased, though we have been expecting it, but we don’t expect that it would be so sudden. The implication of this on cargo clearance is that cost of clearance would increase by N24 difference.
“The cargoes that already enroute Nigeria would also be affected, the jobs that we want to clear this morning were affected.
“When you go back to the importer and request for money, they will tell you there is no notification of increase from customs, so the freight forwarders are the ones that would bear the additional cost.”
Naira plunged to N502 against the United States Dollar at the parallel market on Wednesday and traded at N715 to a British Pound and N605 against the European common currency, Euro.
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