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Economists Urged CBN To Reappraise Forex Policy And Eliminate Arbitrage

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Forex Nigeria

The decision of the Central Bank of Nigeria (CBN) to suspend dollar sales to the Bureau de change operators has “disrupted one of the juiciest gravy trains in the Nigerian economic racket,” according to the a renowed economist, Bismack Rewane and his team.

In its economic note, Rewane and his team at the Financial Deravatives Company believed that though BDCs are licensed by the CBN, the point had been reached where the program was no longer tenable and surely not sustainable.

“A country whose total exports and receipts were approximately $59.8bn, was spending $5bn to subsidize supposed Nigerian tourists during a covid year.

“In other words, spending more on tourism rather than debt servicing. Therefore, the structure of the forex market needed sanitization,” the team of economists led by Rewane at the FDC said in the note.

The team, however, disagreed with the CBN on its decision to divert dollar meant for the BDCs to banks, saying such an amount to “handing over the yam barns to goats to secure.”

They said such interim solution of substituting BDCs with banks is hardly going to achieve much.

“The question that arises is what is the optimal solution? Administrative controls or market pricing? The interim solution of substituting BDCs with banks is hardly going to achieve much.

“You are virtually handing over the yam barns to goats to secure. In the end, there will be no yams nor goats.

“One of the options is to simultaneously allow banks to retail dollars as they have done in the past and make BDCs engage in retailing same but at a buy rate different from today’s subsidized rate, i.e buy dollars from the CBN at the parallel market rate less a N10 premium.

“For example, if the parallel market rate is N500/$, the purchase rate from the CBN will be N490/$. If the BDCs sell at N550/$, the CBN increases its rate for BDCs to N540/$.

“That will be the same retail rate at the banks. This eliminates the arbitrage corridor and abuse. It will certainly reduce the demand for dollars and it must coincide with an increase in dollar supply from the CBN.

“This way, the naira will appreciate towards the ever-elusive fair value or the REER (Real Effective Exchange Rate), which today is anywhere between N470 and N490/$,” FDC team stated.

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Naira

Nigerian Naira Falls to N1,641.27 Amid Improved FX Supply

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The Naira closed the week weaker against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, October 11 to N1,641.27/$1, as the local currency lost 1.15 per cent at the specialised window, according to data obtained from FMDQ Securities Exchange.

The week’s closing value was down N18.70 compared to N1,622.57/$1 published in the preceding session on Thursday.

There was a surge in turnover recorded on Friday as secondary data showed an aggregate of $616.73 million cleared on record, compared to $145.56 million, a rise of $471.17 million or 323.7 per cent.

This is more than $543.5 million announced by the Central Bank of Nigeria (CBN) announced that it sold to authorised dealer local deposit money banks (DMBs) to reduce observed market volatility driven by high demand for commodity imports and seasoned demand for FX between September 6 and 30, 2024.

The rise in supply could be a result of fresh CBN intervention in the market after it had paused for the past two weeks.

In a different pattern, the local currency closed flat against the Pound Sterling and the Euro in the week’s closing session at the official FX market.

Trading against the British currency, the local currency closed at N2,126.26/£1 while it closed at the rate of N1,772.69/€1 against the Euro.

In the Parallel market, the Naira gained on the American currency as it closed at N1,673.54 to the US Dollar, a rise of 94 Kobo compared to N1,674.48/$1 it closed during the Wednesday trading session.

The Naira strengthened its value against the Pound Sterling in the official market by N3.70 to sell at N2,136.68/£1 compared with the preceding session’s N2,140.38/£1 and followed the same pattern against the Euro as it appreciated N7.54 to quote at N1,830.29/€1 versus the previous day’s rate of N1,837.83/€1.

The local currency also appreciated N8.59 to close at N1,202.47 per Canadian Dollar, compared to Wednesday’s N1,211.06 per CAD.

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Naira

Naira Records Marginal Rise on Dollar as Supply Weakens

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New Naira Notes

The Naira exchange rate improved slightly in the official forex market as the Central Bank of Nigeria (CBN) failed to resume the retail Dutch auctions again.

The Naira rose by 0.16 percent on the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) to exchange at N1,622.57/$1 on Thursday, October 10 amid a further drop in supply at the official market.

The local currency rose on the greenback by N2.56 versus N1,625.13/$1 which it closed at the previous session on Wednesday.

Demand for foreign currency continues to overshadow FX liquidity, leaping exchange rate movement tight across the markets.

Data showed a decline in supply as the turnover published on the FMDQ Group website stood at $145.56 million. This indicated that the session’s turnover fell by 14.7 percent, indicating an appreciation of $25.04 million compared to the $170.60 million published in the last trading session.

Meanwhile, the Naira witnessed losses against the Pound Sterling and the Euro. The domestic currency made a N41.18 slide on the British currency to wrap the penultimate session at N2,126.26/£1 from N2,085.08/£1 that it sold at the previous session.

In the same trend, against the Euro, the Nigerian currency closed at N1,772.69/€1 versus N1,746.58/€1, indicating an N26.11 depreciation.

In the Parallel market, the Naira closed at N1,674.48 to the US Dollar, a difference of N22.32 compared to N1,652.16 it closed during the Wednesday trading session.

The gap between official and parallel market rates had crossed N120 in the recent past until the Central Bank of Nigeria FX intervention which has brought the gap within N50-N60 on the greenback.

The Naira weakened its value against the Pound Sterling in the official market by N27.19 to sell at N2,140.38/£1 compared with the preceding session’s N2,113.19/£1.

It followed the same route against the Euro as it appreciated N22.57 to quote at N1,837.83/€1 versus the previous day’s rate of N1,815.26/€1.

The local currency also pulled a N4.66 depreciation to close on the Canadian Dollar at N1,211.06 against Wednesday’s N1,206.40 per CAD.

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Naira Gains on Dollar at Black Market, Falls at Official FX Market

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The Naira strengthened on the US Dollar at the black market but went the other route in the official market on Wednesday, October 9.

The local currency gained N15.23 from the N1,667.39 it closed in the previous session to settle at N1,652.16 at the black market on Wednesday.

At the Nigerian Autonomous Foreign Exchange Market (NAFEX), the local currency lost N63.37 or 4.1 percent to close at N1,625.13/$1, weaker from N1,561.76/$1 it closed on Tuesday.

The daily supply of FX as measured by secondary data from FMDQ Securities Exchange Limited indicated that turnover slumped by $83.08 million or 32.7 percent to $170.60 million from $253.68 million.

The decline in supply comes as the Central Bank of Nigeria (CBN) eased with the latest data indicating that the country is not making enough foreign earnings.

For instance, Foreign Direct Investment into Nigeria in the second quarter of 2024 dropped to $29.83 million, a 65.33 percent drop compared to the $86.03 million recorded in the same period last year.

The development marks the lowest level in the last ten years.

It also reflected in both portfolio investments and foreign currency loans as Nigeria’s foreign portfolio investments for Q2 2024 stood at $1.40 billion, marking a sharp decline of 74.97 percent from $5.60 billion recorded in the preceding quarter, and a 65.3 percent drop compared to the $4.05 billion reported in Q2 2023.

Similarly, foreign loans, which constitute a substantial portion of Nigeria’s capital importation, recorded an inflow of $1.15 billion in Q2 2024, reflecting a 74.98 percent decrease from $4.60 billion in Q1 2024.

However, the Naira strengthened its value against the Pound Sterling in the official market by N46.54 to sell at N2,085.08/£1 compared with the preceding session’s N2,131.62/£1.

It followed the same route against the Euro as it appreciated N42.40 to quote at N1,746.58/€1 versus the previous day’s rate of N1,788.98/€1.

The local currency also recorded a gain on the UK Pound Sterling in the black market, the Naira rose to N2,113.19 an N18.94 gain from N2,132.13 and on the Euro, the Naira pulled an N18.37 appreciation to close at N1,815.26 versus N1,833.63 and added 53 cents on the Canadian Dollar to close at N1,206.40 against Monday’s N1,206.93 per CAD.

 

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