Naira Foreign Exchange Rate to US Dollar to Decline to N430 in 2020
United Capital Plc, a pan-African investment banking and financial services group, on Tuesday said the nation’s official foreign exchange rate may decline to N430 in 2020.
This was after the Central Bank of Nigeria adjusted the Naira exchange rate to a US dollar from N360 to N380 to better accommodate the changes in macroeconomic fundamentals in recent months.
In the company’s economic projection for the second half of the year, titled ‘Nigeria H2 2020 outlook report: Up in the air,’ it said “On the exchange rate, we believe the odds are in favour of a further naira adjustment, which may take the official rate to N410/$ to N430/$ by year-end.
“However, we believe the Central Bank of Nigeria will continue to defend the value of the local unit for as long as it can.”
The report stated that the nation’s growth rate slowed to 1.87 percent in the first quarter of the year, partially reflecting the impacts of COVID-19.
It explained that despite the series of stimulus pumped into the economy by the Federal Government, the second quarter Gross Domestic Product (GDP) is expected to contract given the vast impact of COVID-19 on businesses and households.
It added, “However, the palliatives and reforms that are being announced may reduce the probability of sliding into a deep recession or quicken recovery once the incidence rate of the pandemic begins to drop and the economy is fully re-opened.
“Overall, the Nigerian economy may enter a technical recession by Q3 2020 (after two consecutive quarters of contraction in Q2 and Q3 2020), with a chance of early recovery by Q4 2020 or Q1 2021.”
The company, therefore, lowered its 2020 real GDP growth projection from 2.3 percent to -2.69 percent.
“The biggest downside risk to the above projections remains the possibility of a second round of lockdown, especially if the virus continues to spread rapidly,” it added.
CBN Injects $1.47B Into Forex Market In One Month
The Central Bank of Nigeria injected $1.47bn into the foreign exchange segment of the market as part of its efforts to stabilise the naira in January.
According to figures from the CBN’s January report on its foreign exchange market developments, this was a decrease of 47.4 percent and 64.0 percent from the level in the preceding month and the corresponding period of 2020.
Part of the report read, “Total foreign exchange sales to authorised dealers by the bank was $1.47bn in January 2021, a decrease of 47.4 percent and 64.0 percent from the level in the preceding month and a corresponding period of 2020, respectively.
“A disaggregation showed that foreign exchange sales at the I&E, SMIS, SME, and interbank fell by 79.9 percent, 38.3 percent, 19.8 percent, and 37.3 percent to $0.22bn, $0.48bn, $0.10bn, and $0.04bn respectively.
“Similarly, foreign exchange cash sales to BDC operators and matured swap transactions fell by 19.3 per cent and 48.7 per cent, compared with its level in the preceding month to $0.42bn and $0.12bn respectively in the review period.”
The report said in order to promote transparency and increase diaspora remittance inflows, the bank further updated and reiterated the modalities for the pay-out of diaspora remittances.
In a circular dated January 22, 2021, the bank said it emphasised that only licensed IMTOs were permitted to carry on the business of facilitating remittance transfers into Nigeria.
It added that all diaspora remittances must be received by beneficiaries in foreign currency cash or into their designated domiciliary accounts, and IMTOs were mandated to desist from allowing remittance pay-outs in naira.
The measures were meant to promote transparency in diaspora remittance transfers and thereby improve remittance inflows.
According to reports by members of the Monetary Policy Committee at the last meeting, the CBN continued to defend the naira in January and February.
It noted that the naira exchange rate depreciated across the various windows including the I&E and BDC.
External reserves also declined from $36.6bn in December 2020 to $34.46bn in February 2021.
The committee stated that it was early to know the extent to which the new policy of CBN to boost remittances would impact pressures in the foreign exchange market.
While capital imports had picked up in recent months, the MPC stated that it was still far below the level it was in January 2020.
CBN Warns Against Rejection of Old and Lower US Dollar Bills
The Central Bank of Nigeria (CBN) on Tuesday has warned both the Deposit Money Banks (DMBs), Bureau De Changes and other forex dealers against rejecting old and lower US dollar denominations.
In a circular dated April 9th, 2021 and signed by Ahmed B. Umar, Director, Currency Operations Department, CBN, the apex bank said it has received several complaints from members of the public on the rejection of old and low denominations of US Dollar bills by authorised forex dealers operating in the country.
The CBN, therefore, mandated all DMBs/authorised forex dealers to accept both old series and lower denominations of United States Dollars (USD) that are legal tender for deposit from their customers.
The leading bank added that it will not hesitate to sanction any DMB or other authorised dealers who refuse to accept old series and lower denominations of US dollar bills from their customers.
Also, the apex bank warned all authorised dealers to desist from defacing and stamping US Dollar Banknotes as such notes always fail authentication test during processing and sorting.
Naira Remains Under Pressure Amid Weak Macro Fundamentals
The Nigerian Naira plunged as low as N422 to a United States Dollar on the NAFEX window on Wednesday before moderating to N410 following a series of weak macroeconomic fundamentals released in recent weeks.
Nigeria’s inflation rate increased by 18.17 percent year-on-year in March while the unemployment rate rose to 33.33 percent with new job creation hovering at a record low amid weak economic productivity.
The commodity-backed currency traded at N486 to a US Dollar on the parallel market popularly known as the black market.
Against the British Pound, the local currency was exchanged at N670 and N577 to a Euro common currency.
At the Bureau De Change segment of the foreign exchange market, Naira traded at N482 per US Dollar; N670 per British Pound and N580 to a Euro.
In an effort to up revenue generation and ease exposure to the unstable global oil market, the Federal Government of Nigeria had removed electricity tariffs, fuel subsidy, introduced other import related charges and devalued the local currency more than three times in the last 12 months despite the negative impact of COVID-19 on the masses.
The series of adjustments dragged on economic productivity as importers and other forex-dependent businesses struggle with persistent dollar scarcity largely due to low foreign reserves of $35 billion caused by weak crude oil production and OPEC production cap.
The apex bank’s inability to service the economy with sufficient dollar to ease liquidity challenges in spite of various measures introduced recently to lure diaspora to remit more escalated prices of goods while the surge in electricity tariff, petrol price and other increments were passed on to already stressed customers.
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