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Analysts Hail CBN’s Naira Defence as Rate for PTA, Others is Adjusted to N360/$

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  • Analysts Hail CBN’s Naira Defence as Rate for PTA, Others is Adjusted to N360/$

Financial market analysts have welcomed Monday’s decision by the Central Bank of Nigeria (CBN) to lower the naira exchange rate for retail invisibles such as business and personal travel allowances, school fees and medical fees to N360 to the dollar, from N375.

Describing the move as a show of strength by the central bank and its capacity to defend the naira, they however cautioned the bank to be conscious of its maturing obligations and potential risks in the global market, especially volatile crude oil prices.

Desirous of alleviating the pains of retail foreign exchange consumers, the CBN directed all banks to immediately begin the sale of FX for business and personal travel allowances, and tuition and medical fees to customers at not more than N360 to the dollar.

The CBN, in a note, explained that it would sell to commercial banks at N357 to the dollar, adding that banks were expected to post the new rates in the banking halls of their branches immediately.

In line with the new directive, the acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, said the bank would send examiners to commercial banks to ensure the new rates are implemented.

“Banks are prohibited from selling FX funds meant for invisibles to BDCs,” he added.

The CBN also intervened in the FX market with $185 million.

A breakdown showed that it offered $85 million to banks at the rate of N357/$1 for onward sale to retail end users at not more than N360/$1 for invisibles, while $100 million was sold to authorised dealers in the interbank window to meet the requests of wholesale customers.

Reacting to the directive on the sale of FX for retail invisibles, an analyst at Ecobank Nigeria Limited, Mr. Kunle Ezun, described it as a show of strength by the CBN.

“It also shows that they are winning the battle. I now think that when the CBN talked about creating an exchange rate convergence, it was actually referring to the rate for invisibles.

“So, what the CBN has done is to show its capacity to defend the naira. But we expect the CBN to now push through with liquidity,” he added in a phone interview.

Ezun, however, expressed reservations about how much support the CBN would be able to give the naira, saying: “When the external reserves begin to drop, it would raise a red flag.”

The chief executive of Financial Derivatives Limited, Mr. Bismarck Rewane, who also welcomed the revaluation of the rate for PTA and others, said maturing FX forwards should also be of concern to the CBN.

“We must remember that the FX forward contracts would start maturing as from tomorrow (Tuesday). Forward contracts are posted-dated cheques and when they start maturing is when we would start seeing the effects of the intervention on the reserves.

“I think if for anything, we should be using this opportunity to find a fair value for the naira because oil prices have come down and forward contracts are maturing,” Rewane said.

According to him, by adjusting the rate for such invisibles, “the CBN is just subsidising Nigerians”.

“This could lead to a crisis of false expectations. Rather than move the rate up, what I expected the CBN to do was to open up the market, remove all the restrictions and you will see that the currency will find its real value.

“So, first of all, it is a good move, but it is better to be cautiously optimistic rather than getting carried away,” Rewane stated.

The Chief Executive of Cowry Asset Management Limited, Mr. Johnson Chukwu, who also welcomed the adjustment of the naira for retail invisible, said it was a demonstration of the CBN’s capacity to defend the naira.

“I think before the CBN came out with this, it must have measured its capacity to support the naira. Luckily for the CBN, there is tight naira liquidity in the market and that does not encourage speculative activities.

“People do not have cash to buy dollars to hold anymore and that has supported the naira. The key thing is that as the CBN continues to pump dollar liquidity, it would force more people holding dollar positions to sell and that would definitely help the market.

“For now, a lot of people holding dollars are looking for ways to exit,” Chukwu said.

The naira traded at between N385 and N390 to the dollar at some parallel market points in Lagos on Monday.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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