- CBN to Raise Dollar Supply to BDCs to $40,000 Weekly
The Central Bank of Nigeria (CBN) has resolved to raise dollar supply to Bureau De Change (BDC) operators to $40,000 weekly from next week, up from the $20,000 it sold to the currency dealers this week, Thisday reported.
The move is in line with its aggressive bid to achieve exchange rate convergence and stability. A reliable source disclosed.
Earlier this week, the central bank had disbursed $20,000 each to the BDC operators in two tranches of $10,000 each, which according to the central bank’s spokesman, Mr. Isaac Okorafor, underscored the commitment of the bank to ensure liquidity in the foreign exchange market.
However, there are strong indications that the demand for foreign exchange by authorised dealers has slumped, as the dealers were only able to pick $45 million out of the $100 million offered by the CBN on wholesale spot.
Industry experts attributed the slump in demand to the rate of forex liquidity being pumped into the system by the CBN. This was also attributed to the new trend in the general cash crunch in the financial system.
The dollar has also crashed against major currencies since US President Donald Trump’s surprising declaration that China is not manipulating the value of the yuan.
Furthermore, Okorafor said the major injections made by the bank in the course of the week were aimed at providing access to all stakeholders with legitimate need for forex.
“The CBN remains upbeat that the forex market will remain liquid and that Nigerians who genuinely require the forex will get ample access to the currency,” Okorafor noted.
The CBN had this week opened a new window for Small and Medium Enterprises (SMEs). These special interventions were in addition to over $500 million offered to dealers in the wholesale and retail segments in the past week.
Okorafor had disclosed that the new window for SMEs provides small scale importers an avenue to source forex to boost their respective business through the importation of eligible finished and semi-finished items at not more than $20,000 per quarter per enterprise.
Lauding the CBN intervention across the various window of the forex market, analysts expressed hope that the trend would be sustained, going by the current level of foreign reserves.
Foreign-Currency Shortages to Render Nigerian Banks Vulnerable -Moody’s
Forex Scarcity Renders Nigerian Banks Vulnerable
Nigeria’s banks to experience acute funding challenges as the drop in foreign currency deposits hit a record-low following COVID-19 pandemic disruption, stated Moody’s.
In a recent report titled ‘Renewed foreign-currency shortages highlight vulnerability for Nigerian banks‘ published by Moody’s Investors Service, a bond credit rating business of Moody’s Corporation, the drop in dollar deposits amid low oil revenue, volatile foreign investment and declined remittances from abroad due to COVID-19 pandemic are threatening to renew forex liquidity crisis of 2016-2017 on Nigerian banks.
“Lower dollar inflows at a time when foreign currency borrowing will likely be more expensive for Nigerian banks will strain their foreign currency funding, despite substantial improvements compared to 2016,” said Peter Mushangwe, Analyst at Moody’s.
“Our moderate scenario where foreign-currency deposits decline by 20%, while loans remain constant, would increase rated banks’ funding gap to NGN1.5 trillion [$3.8 billion], and to NGN1.9 trillion [$5.0 billion] under our severe-case scenario of 35% foreign-currency deposit contraction, creating acute funding challenges.”
According to Moody’s, oil and gas exports account for about 90 percent of Nigeria’s foreign currency revenue. However, with crude oil now trading at around $40 per barrel, far below its average of $65 per barrel in 2019 and $72 per barrel in 2018, Nigeria’s banks are expected to struggle to meet foreign-currency withdrawals in the next 12 to 18 months.
Moody’s said its rated “banks reduced their foreign currency funding gap to a combined NGN354 billion ($984 million) in 2019 from NGN1.436 trillion ($5.5 billion) in 2016. The ratio of foreign-currency loans to foreign-currency deposits at Moody’s rated banks dropped to 106% at the end of 2019 from 135% in 2016 as banks cut back on dollar loans while building up their dollar deposits.
“The smaller funding gap will enable the banks to better withstand unforeseen deposit withdrawals and likely higher borrowing costs. However, in the event of foreign currency deposits contracting by 20% or more, banks’ funding gaps will be significant.”
This further explained why the Nigerian Naira is trading at a record low of N461 against the United States dollar on the black market in recent weeks.
Naira Records Marginal Gain Against the US Dollar on Thursday
Naira Gains Marginally Against the US Dollar On Thursday
The Nigerian Naira gained slightly against the United States dollar both on the black market and Investors and Exporters’ Forex Window on Thursday
On the black market, the local currency gained N1 from the N462 it exchanged against the US dollar on Wednesday to close at N461 on Thursday.
This slight improvement continues against the Euro single currency on Thursday as the Naira gained N2 from N505 it traded on Wednesday to N502 on Thursday.
However, the Nigerian Naira was unchanged against the British Pound. The local currency traded flat at N560 against the British Pound.
On the Investors and Exporters’ Forex Window, the Naira gained 0.13 percent or 50 kobo against the US dollar to trade at N386. This was after trading as low as N389.75 during the trading hours of Thursday.
Activity level rose by almost 2000 percent from $10.37 million turnover recorded on Wednesday to $204.90 million on Thursday.
The Nigerian Naira remained under pressure as dollar scarcity continues to hurt its value and sentiment.
Also, the lack of clear policy direction is one of the reasons Nigeria continues to struggle with needed capital importation and huge forex demand from investors looking to repatriate their funds.
The Federal Government recently raised fuel pumping price at a time when most nations are reducing costs to ease economic burden on their citizens.
This move already rejected by the Nigeria Labour Congress (NLC) on Thursday highlighted the nation’s lack of economic direction despite numerous announcements by the central bank and federal government to mitigate negative impacts of COVID-19 on the economy.
Naira Exchanges at Record-low Against US Dollar on Black Market
Naira Trades at Record-low of N462 Against US Dollar
The Nigerian Naira plunged to a record low of N462 against the United States dollar on Wednesday on the black market as scarcity persists.
The local currency lost N2 against the US dollar from the N460 it traded on Tuesday to N462 on the black market on Wednesday. While against the British Pound, the Naira remained unchanged at N560. The same rate it exchanged on Tuesday.
Similarly, the Nigerian Naira remained flat at N505 against the Euro single currency on the black market.
On the Investors and Exporters Forex Window, the local currency remained unchanged at N386.50 to a US dollar, the same rate it was exchanged on Tuesday.
Activity on the platform dropped on Wednesday as daily turnover stood at $10.37 million, below the $14.37 that was exchanged on Tuesday.
Scarcity across key foreign exchange segments continues to hurt the nation’s currency and economic outlook due to the inability of investors and businesses to access foreign exchange needed to import raw materials into Africa’s largest economy.
This was evident in the broad-based decline recorded in the manufacturing sector in the month of June.
Also, the unconfirmed report that the Federal Government is looking to converge the nation’s exchange rate due to the pressure from the International Monetary Fund (IMF) added to Naira pressure as speculators and hoarders now have reason to remain in business.
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