Naira to Gain Against Global Counterparts this Week
The Nigerian Naira is expected to gain further against global counterparts on the black market this week as the Central Bank of Nigeria (CBN) planned to resume forex sales today 7 September 2020.
The Naira plunged to N480 against the US dollar on the black market during the nation’s lockdown and as low as N615 and N550 against the British Pound and the Euro, respectively.
The Naira gained N40 last week to trade at N440 against the United States Dollar and improved to N570 and N506 against the British and Euro, respectively.
This, the central bank attributed to the activities of speculators who were hoarding dollar to create scarcity across key forex segments.
Also, the suspension of forex sales to the bureau de change operators created dollar illiquidity that eventually hurt the local currency value, especially after devaluing the currency twice during the COVID-19 lockdown.
However, with the resumption of forex sales to the bureau de change operators by the apex bank today, the Naira is expected to gain against global counterparts in the near-term.
Alhaji Aminu Gwadabe, the President, Association of Bureaux De Change Operators of Nigeria, commended CBN and stated that sales to the BDCs will ensure forex stability.
“The anticipated intervention in the BDC sector will ensure stability in the foreign exchange market,” he said.
Naira to Dollar Exchange Rate in 2020
Naira to dollar exchange rate in 2020 declined by N73 from N306 Central Bank of Nigeria sold it in the beginning of the year to N379 and N386 on the investors and exporters forex window.
The Naira to dollar exchange rate in 2020 has been marred by a series of economic uncertainties and weak macro fundamentals caused by the COVID-19 pandemic.
At the beginning of the year, the official Central Bank of Nigeria’s naira to dollar exchange rate stood at N306 to a US dollar, while on the parallel market popularly known as the black market, the local currency was exchanged between N350 to N360 per US dollar.
On the investors and exporters’ foreign exchange window instituted by the central bank to mirror a free market, the naira was exchanged at N325 to a United State dollar.
However, unclear economic direction amid a 50 percent increase in Value Added Tax from 5 percent to 7.5 percent and border closure hurt the Nigerian economic outlook and plunged investors’ confidence in the economy even before COVID-19 outbreak.
This weak sentiment metamorphosed into broader economic decline when COVID-19 broke out in the country on February 27 2020 as investors that were doubting President Buhari economic path see no reason to wait any longer or believe Nigeria has what it takes, in terms of the health system, to contain an impending health catastrophe.
The surged in demand for US dollar by those looking to move their funds out of the country compelled Governor Godwin Emefiele led central bank to adjust the Nigerian Naira foreign exchange rate from N306 to a US dollar to N360 in order to discourage capital flight while simultaneously sustain dwindling foreign reserves.
But with global oil prices plunging to as low as $15 per barrel, below Nigeria’s $17 per barrel cost of production and demand for the commodity, especially Nigeria’s crude oil at almost zero during the peak of COVID-19, foreign investors were willing to lose N54 per US dollar to exit the Nigerian market.
According to a JPMorgan report, central bank forex backlog was over $5 billion, yet foreign reserves continues to drop. Left with little to no choice, the federal government approached the International Monetary Fund (IMF) for $3.4 billion financial assistance while the apex bank devalued the Naira again to the currency $379 to a US dollar and N386 on the investors and exporters window.
Despite the negative impacts of COVID-19 on the Nigerian people and the broad-based decline in economic activities that saw the nation’s Gross Domestic Product (GDP) contracting by 6.10 percent in the second quarter of the year and the unemployment rising as high as 27.1 percent or 21.8 million people in an import-dependent economy, the apex bank did not just devalue the Naira twice, the Federal Government raised electricity tariffs and remove subsidy in an economy with very weak consumer spending.
With the series of economic uncertainties, investors in forex forward market in London started offering Naira future contracts for N545, saying the apex bank no longer have the resource to support the Naira given the current global situation.
True to their words, Naira to Dollar exchange rate in 2020 plunged to N480 on the black market amid persistent forex scarcity before recently moderating to N467 when the central bank resumed forex sales to the bureau de change operators across the country.
Also, with the economy expected to plunge into an economic recession for the second time in four years in the third quarter of 2020, the Naira to Dollar exchange rate is expected to suffer even further in 2020.
Naira Drops N2 on Black Market Even With 11.5% Interest Rate
Naira Declines on Black Market Despite Lower Interest Rate
Nigerian Naira traded at N467 to a US dollar on the back market on Wednesday despite the Central Bank of Nigeria’s led monetary policy committee lowering the interest rate by 100 basis points after months of saying NO.
The local currency declined by N2 from N465 it exchanged on Tuesday to N467 on Wednesday as investors doubt the new interest rate would be effective given the size of the nation’s economic woes.
Also, the central bank rate adjustment was seen by most as recession validation. Experts and even the apex bank had predicted that except the nation recorded strong growth in the third quarter, Nigeria would slide into recession for the second time in four years.
This was after Nigerian currency was devalued twice to accommodate the nation’s weak foreign reserves in the wake of low oil prices and the drop in demand for the commodity.
Since then, the central bank has injected a total sum of N3.5 trillion into the economy to mitigate the negative impact of COVID-19 on the nation and support gradual improvement in productivity.
However, the decision of the Federal Government to raise electricity tariffs and remove petrol subsidy at a time when 27.1 percent of the working population or 21.8 million people are out of jobs with COVID-19 eroding consumer buying power, further weighed on sentiment and send the wrong message to potential investors and businesses.
Against, the British pounds the Nigerian Naira traded at N600 while it was exchanged at N545 to a European Union common currency.
With labour declaring a nationwide industrial action starting from Monday September 28, Nigeria’s detoriating economic outlook may further plunge the Naira value against global counterparts.
Naira Remains Pressure at N465/US$ Despite BDCs Expecting $50.9m from CBN
Naira Remains at N465/US$ Despite BDCs Expecting $50.9m Injection from CBN
The Nigerian Naira remained under pressure despite the Central Bank of Nigeria’s foreign exchange sales to the bureau de change operators (BDCs).
Since the apex bank resumed forex sales about two weeks ago, the local currency had only improved slightly against global counterparts as investors and businesses doubt the central bank’s ability to sustain forex intervention given the weak foreign reserves and low oil prices.
Two weeks ago, the apex bank injected $51.8 million into the foreign exchange market to ease scarcity and support Naira’s value, however, despite the amount injected, the local currency only moderated slightly from N480 to a US dollar to N443 before depreciating back to N465 following the increase in electricity tariff and complete subsidy removal.
In what appeared like investors have started pricing in a further decline in consumer spending, especially with inflation hovering above 13 percent and expected to rise further with an increase in prices.
Also, Nigeria’s unemployment rate remained high at 27.1 percent, meaning apart from weak revenue generation and definitely low tax revenue, businesses will not be creating enough jobs to cushion the impact of COVID-19 on the economy.
A situation expected to further weigh on Naira outlook against global counterparts, even with central bank forex sales.
The Naira exchanged at N465 to a US dollar on Tuesday despite Bureau de change operators expecting $50.9 million forex allocation from the central bank today. This means, the market no longer expect a meaningful impact from the apex bank intermittent intervention because of the disparity in the amount being injected and forex backlog estimated at slightly over $5 billion.
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