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Understanding CBN’s New Policy Actions in Forex Market

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Naira - Investors King

Central Bank of Nigeria’s New Foreign Exchange Policy 

In an effort to further ease economic gridlock, the Central Bank of Nigeria on Monday released new foreign exchange policy actions.

The CBN in a press release said the new forex policy will help ease the challenges faced by Nigerians in obtaining fund for foreign exchange transactions.

Having managed to scoop up the foreign reserves to $29.3 billion, the CBN has broadened its forex supply policy by including the previously excluded categories, medical needs, school fees, Personal and Business Travel, and reduce the tenor of it forex forward sales contracts.

Here are the key aspect of the new policy;

School and Medical Fees

Perhaps, this is the most important aspect of the policy. One, because it shows it’s an inclusive government, where people’s needs are given priority.

Two, understanding the challenges face by parents, guardians and sponsors, the CBN appropriated about $20 million dollars weekly for commercial banks to cater for school fees payment and others, but in order to check banks’ excesses, commercial banks were directed to pay directly to the institution specified by the customer.

According to the CBN, this will ensure “that as many customers as possible get the foreign exchange they genuinely demand.” Also, banks are instructed to do the same for customers seeking to buy foreign exchange for medical bills or make payment to hospitals.

Again, the CBN has said the supply of forex to retail end-users (PTA, BTA, School fees, medical bills, etc.) would be sustained by the apex bank.

Forex Sales Tenor

Previously, commercial banks have to wait for 180 days before their forex forward sales contracts mature, but in order to increase market liquidity and boost economic activities, the CBN has significantly reduced the current maximum cycle to 60 days from the transaction date.

However, this depends on the sustenance of current oil production level and gradual increase towards 2.2 mbpd NNPC target. Any further attack on the pipeline will undermine current progress and impede the nation from taking advantage of the surge in global oil prices to revamp the economy and effectively fund it diversification agenda.

Forex Sales at Major Airports

To further ensure that travelers access forex at a more competitive exchange rates and ease their burden, the CBN has directed commercial banks around the country to open forex retail outlets at major airports.

This, will not just ease traveler’s burden but significantly reduce parallel market patronage and gradually close the gap between the official rate and black market’s rate, since commercial banks are instructed not to sell above 20 percent of the official interbank market rate (N305).

Clearing Backlogs

Accordingly, the CBN will immediately begin the implementation of its articulated program to clear all the backlogs in the interbank forex market. Likewise, effective intervention programme would be implemented to ensure the interbank market is well-liquid and function efficiently.

This is one of the highlights of the new forex policy because the inability of commercial banks to meet financial obligations have forced them to introduce all kinds of charges that have worsened the nation economic situation and stress bank’s customers.

Similarly, Fitch Ratings on Wednesday said clearing forex backlogs will allow banks meet financial obligations and restore normalcy to the banking sector. Noting that economic recovery depends largely on both policy makers and implementation, which according to the agency depend on financial institutions.

Overall, the policy appears sound and tailored to help bolster economic activities. However, “the effectiveness of the new policy depend on sustenance, while sustenance depends on continuous foreign exchange generation through the sales of crude oil,” said Samed Olukoya, a foreign exchange research analyst at Investors King Limited. “An attack on any of the pipelines could disrupt the whole policy and hinder the nation from a progressive economic recovery,” he added.

Since the new policy was introduced, the Naira has gained about N19 to trade at N501 on the parallel market on Wednesday, after reaching the all-time high of N520 on Monday.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Bismarck Rewane Says Nigerian Naira Overvalued by 200%

The Nigerian Naira is overvalued by 200% compared to most global currencies that are undervalued.

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Naira Notes - Investors King

Bismarck Rewane, the managing director of Financial Derivatives Company Limited (FDC), has said the Nigerian Naira is overvalued by 200% compared to most global currencies that are undervalued.

The Nigerian Naira has been on the decline against its global counterparts since last year despite global oil prices trading at above $90 a barrel for the most part of 2022.

In recent weeks, the embattled currency plunged to a record low of N750 per dollar at the parallel market popularly known as the black market and dipped to as low as N431/US$1 at the Investors and Exporters Forex Window adopted by the Central Bank of Nigeria (CBN) as the nation’s official foreign exchange rate.

Experts have said CBN’s attitude of stage managing the Nigerian currency is responsible for its uneven exchange rates and persistent crisis.

Presently, the apex bank adopted a managed pegged foreign exchange market and intervene intermittently when necessary to prop up the value of the Nigerian Naira against its global counterparts.

This, Rewane said is responsible for the currency woes.

He said “Most currencies are undervalued but Nigerian naira [is] overvalued by 200 percent,”  the economist said at a breakfast session at Lagos Business School (LBS) in Lagos.

With the local currency under pressure and the CBN struggling with dwindling foreign reserves, it is expected that the CBN at some point in the third or final quarter of 2022 will be forced to adjust the Naira exchange rate to its global counterparts to ease pressure on Nigeria’s weak foreign reserves.

If this happened, Rewane predicted that Naira could return back to N700 per U.S. Dollar on the black market and N440 at the I&E forex window.

“The naira will likely depreciate again towards the N695/$-N700/$ range at the parallel market. The CBN will allow for a partial crawling peg in the forex market, and bring the I&E rate down to N440/$ in September”, he added.

 

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Naira

Dollar to Naira Today Monday, 8 August 2022

The Naira was exchanged at N700 for a United States Dollar at the black market while operators of that section of forex bought the U.S. Dollar at N680.

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Naira Exchange Rates - Investors King

Dollar to naira today – the exchange rate of the U.S Dollar to the Nigerian Naira today Monday 8 August 2022 remained high in Nigeria’s unregulated foreign exchange market popularly known as the black market.

The Naira was exchanged at N700 for a United States Dollar at the black market while operators of that section of forex bought the U.S. Dollar at N680.

Dollar to Naira Today Black Market

Dollar to Naira (USD to NGN) Black Market Exchange Rate Today
Buying Rate 680
Selling Rate 700

Nigeria’s persistent Dollar scarcity amid rising demand continued to dictate the nation’s exchange rate. In recent weeks, the Central Bank of Nigeria (CBN) has linked the situation to activities of bureau de change operators and politicians reportedly buying and hoarding dollars ahead of the 2023 general elections.

Dollar to Naira Today Official Market

At the Investors and Exporters (I&E) forex window, the Nigerian Naira opened the day at N428.12 to a United States Dollar. An improvement from N429 it opened on Friday.

On Friday, currency traders transacted $71.92 million in forex value.

The CBN adopted the I&E rate as its official rate and launched a Naira4Dollar scheme to lure exporters, repatriating export proceeds, to the window to exchange foreign earnings at CBN stipulated rate.

Still, activity in that section of foreign exchange remained low as exporters are yet to fully embrace the Naira4Dollar initiative or understand why they should ignore N700/US$1 of the black market for N428.12/US$1 plus N5 per dollar repatriated and sold at I&E window.

Dollar to Naira Today CBN Rates

As of Friday, the CBN bought the U.S. Dollar at N417.47 and sold the American currency at a difference of N1 for N418.47 per U.S. Dollar.

The Pounds Sterling was purchased at N508.0226 per unit and sold at N506.8086. The Euro common currency was exchanged as shown below.

 

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Naira

Naira Declines to N417.19 Against the U.S. Dollar at CBN Forex Section

The Nigerian Naira declined further against the United States Dollar at the Central Bank of Nigeria’s (CBN) section of foreign exchange on Wednesday.

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Naira - Investors King

The Nigerian Naira declined further against the United States Dollar at the Central Bank of Nigeria’s (CBN) section of foreign exchange on Wednesday.

The local currency lost N0.29 or 0.07% against the American Dollar to exchange at N417.19. On Monday, the apex bank sold the U.S. Dollar at N416.9 to Deposit Money Banks (CBN), Investors King‘s research has shown.

But growing economic uncertainties amid the recent rate increase, high dollar demand by both politicians and genuine businesses looking to import raw materials, and weak economic fundamentals have plunged the Naira to N417.19 against its global counterpart.

In the unregulated black market, the Naira remained under pressure as it was exchanged at N630, a much-improved rate when compared to N750 it traded about a week ago.

Despite the apex bank discouraging patronage at that section of forex, Nigerians in need of forex have continued to patronise the black market. Most of them claimed the Deposit Money Banks mandated by the CBN to sell to them are merely collecting Dollar request forms without sales.

At the Investors & Exporters (I&E) forex window, the story is not any different as the local currency shed N0.29, or 0.34% from N427.90 it opens the day against the United States Dollar to close at N429.20. Investors and exporters at the I&E forex window transacted $123.78 million worth of dollars on Wednesday.

Meanwhile, the President of the Association of Bureau De Change Operators of Nigeria ABCON, Alhaji Aminu Gwadabe, in an interview on Saturday, called on the CBN to abolish the official pegged exchange rate and allow the forces of demand and supply to determine an appropriate exchange rate for the Naira.

He said “It might sound counterintuitive but the way out of the current frenzy is to abolish the official fixed exchange rate and allow the Naira to float.

“CBN should contemporaneously undertake a large-scale dollar intervention in the open market that can inspire confidence in the Naira and checkmate the current tailspin.

“Once there is a significant positive movement, the market will react and, in all probability, spur an avalanche of panic selling and further buoy the Naira,” Gwadabe said.

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