- Scared Investors Want Proof Naira Will Float for Real on Window
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.
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.
Exchange Rate: Dollar to Naira Today, Friday 3 December 2021
The Nigerian Naira remained under pressure across the board despite efforts by the Central Bank of Nigeria (CBN) to prop up the value of the local currency against its global counterparts.
Backed by Nigeria’s foreign reserves, Naira plunged from N306 against the United States Dollar to N414 at the official forex window during the peak of COVID-19 when crude oil dropped to $15 a barrel and eroded Nigeria’s foreign exchange earnings.
Since then, Africa’s largest economy has instituted various forex policies to support the Naira, deepen economic productivity and generally grow activity across key sectors. However, the lack of a stable foreign exchange market has impeded capital importation needed to prop up Naira value as foreign investors continue to stay off the Nigerian market according to the World Bank.
Naira to Dollar Exchange Rate Official Fx Window (FMDQ)
On Thursday, December 2, 2021, the Nigerian Naira opened at N413.94 against the United States Dollar at the Official Forex Window managed by the FMDQ Group.
The local currency sheds 0.06 percent to a greenback by the close of business on Thursday, closing at N414.80 to a United States Dollar.
Analysing the forex spot market, Naira rose to as high as N404 against the American Dollar during the trading house of Thursday before plunging to N444. Trading activity dropped on Thursday as investors traded $139.69 million US dollars, in contrast to $223.8 million transacted on Wednesday.
Naira Black Market Exchange Rates
At the unregulated forex market, the Naira exchanged hoarders and speculators are exchanging the Naira at N558 to United States Dollar.
This was in spite of the CBN efforts at shutting down activity at that section of the forex market given its damages to the nation’s forex market and the fact that Nigerians were almost adopting the black market rate as the official rate.
Experts, including the Vice President, Yemi Osinbajo have blamed the Central Bank of Nigeria for existing of the black market. According to the Vice President, as long as the forex arbitrage exists due to the numerous forex rates, speculators, hoarders and other forex traders will continue to sustain the unregulated black market.
Central Bank of Nigeria’s Official Naira Rates
The CBN quoted rates are the rates the apex bank sells various currencies to Deposit Money Banks (DMBs) in Nigeria. The DMBs are however expected to add between N1 to N2 on each rate to cover costs when selling to customers.
|12/1/2021||SOUTH AFRICAN RAND||25.936||25.9993||26.0626|
Nigerian Naira (NGX) to Bitcoin (BTC)
Bitcoin, the world’s most dominant cryptocurrency, lost 0.13 percent against the Naira to N23.299 million or $56,833 in the last 24 hours.
Against Ethereum (ether), the second most capitalised cryptocurrency, the Naira gained 0.15 percent to N1.874 million.
GTBank Naira Exchange Rates
As of December 2, 2021, GTBank exchanged the Naira to the US Dollar at N480. While the Euro, the Canadian Dollar and the Great Britain Pound were traded at N549, N366 and N649, respectively since August 20, 2021. See other Naira exchange rates below.
Access Bank Naira Exchange Rates
Sterling Bank Naira Exchange Rates
Union Bank Naira Exchange Rates
UBA Naira Exchange Rates
Naira Sees Stability at Official Window
The Naira has this week witnessed a steady, unchanged value against the naira as it closed at N415.07 against the dollar on Wednesday (for the fourth straight day), according to the Investors and Exporters window where the Nigerian currency is traded officially.
As mentioned in a previous article, the Naira appears to have found a resting place for its value heading into the festive period. Even though the Naira is now stable, the value may still be too negative for the Nigerian economy, as food prices and prices for other goods keep going on the rise.
The FMDQ group through its website gives updates concerning the currency’s daily trading (opening and closing prices). It also gives updates on the Spot rate and Forward rate; the prices at which the currency trades for transactions throughout that day as well as future transactions which were agreed on that day.
The Spot rate maintained its usual highest value of N404 per dollar, but its lowest value fell as far as N457.02 per dollar. This is considerably lower than the N444 per dollar which it usually attains.
The Forward rate has however seen changes in value, dropping to a high of only N445.97 per dollar, maintaining its lowest price of N457 per dollar.
The FMDQ group also reports the total turnover of the currency in a day, i.e. the total amount of the currency that was traded throughout that day. On Wednesday, it was revealed that the total amount of the dollar that was traded sat at $223.8 million at the close of the day. This is higher than the $152 million which was recorded the previous day.
At the parallel market (which is not recognized by the Central Bank of Nigeria), the Naira was sold at a price of N558 per dollar as it looks to maintain the recovery which it made after hitting an all time low of N575 per dollar in September.
Naira Stabilizes at N415/$1 at Official Fx Window
The Nigerian currency has continued its trend of closing at N415 per dollar, after it settled to close at that price (which it has closed at consistently since Friday) on Tuesday. This is according to data gathered from the Investors and Exporters window where the Naira is traded officially.
It seems to appear that the Naira has found its resting place at this price, considering the number of days at which it has closed at that particular price. It is now left to see how this currency will trade closer to the festive period.
However, this ‘stability’ cannot be held as a permanent thing, because for this price to be the new normal, it may have to be maintained over a longer period of time. The Central Bank of Nigeria should be making moves to bring the value of the naira back up again, to make things better for Nigerians and Nigeria especially as we approach the Christmas period.
The FMDQ group’s updates of the Spot and Forward exchange rates showed slight changes here and there, with nothing too heavy. The Spot rate did not see any changes from Monday, as it maintained the high of N405 per dollar and a low of N465.97 per dollar.
The Forward rate however witnessed a jump, with Tuesday’s high jumping back to N411 per dollar from N452 per dollar where it sat on Monday. The lowest of the Forward rate further fell to N457 per dollar from the N453 per dollar where it was on Monday.
Those who would benefit the most from Tuesday’s trading round are those who agreed on future deals at prices between N411 and N415 per dollar.
The daily turnover recorded by the FMDQ group on Tuesday sat at $152.98 million, more than $100 million less than the $256 million which Monday recorded.
On Tuesday, the parallel market saw the Naira trade at N565 per dollar. The Central Bank has however stated that it does not reckon with the parallel market.
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