Naira crashes to all-time low of N375 to dollar

Nigeria’s foreign exchange market may have taken a new turn as a rare movement in exchange rate happened between Monday and yesterday with massive swing in the value of Naira in the interbank official market against relative stability in the parallel market.

At the interbank market yesterday, Vanguard learnt banks were forced to reverse their high bid rates to rescue the Naira from a massive depreciation of almost 23 per cent to all time low of N375/USD against the average N308/USD it had traded consistently for over two months.

Reuters had reported that the official trading platform, FMDQ Plc, confirmed a single trade worth USD10,000 had been made at a rate of N376.63/ USD early on Tuesday.

However, by the close of trading, it was forced back to N305 with dealers claiming the rate was false. The currency had traded within a band of N304 and N308 to one US Dollar for some months now before dropping to N310 last weekend.

But surprisingly, parallel market has remained stable with the local currency appreciating marginally against the US Dollar, closing at N465/USD against N470 last weekend. The local currency had recovered from a low of N490/USD in the parallel market in September this year.

Usually depreciation in the official interbank window is followed by a corresponding depreciation in the parallel market windows, while in many instances the parallel market depreciates even when there is stability in the interbank window. This is the first time parallel market would be stable while interbank depreciates.

Vanguard investigations revealed that uneasy calm had been the climate in the interbank market in the past two months when banks began to feel CBN was not transparent in managing demand and supply as well as placing remote controls over exchange rates.

Consequently, according to one of the foreign exchange dealers in a bank, several violations of the rules have been happening at the background, with banks trading the officially sourced foreign currency at rates far above the official interbank rate.

He explained that the situation could only be supressed for a while, adding that what happened yesterday was an unveiling of the true market situation.

He also expressed concern that the rate may be forced back to the controlled region, if it continues to trend in the direction of depreciation, which may hit N400/USD.

The development may be connected to the speculation that the latest spike in interbank rate was triggered by the purchase of USD60 million last week at N390/USD by a major bank, which in turn sold the foreign currency at parallel market rate of over N450/USD.

Though other banks have been involved in various unwholesome trades in foreign currencies at rates close to parallel market, the said transaction last week appeared too glaring, according to dealers.

However, no bank has been sanctioned by CBN for such transactions so far, a development which may have piled more pressure on the Naira, while encouraging more underground dealings.

The illicit trading in foreign currency is said to be boosting the earnings of banks who are engaged in it as spread between purchase and selling prices (profit margin) widened to over 20 per cent as against 2.5 to 3.0 per cent.

Naira may not fall below 475

Economic and financial experts say the naira may not fall below 475 against the United States dollar between now and end of December.

They based the prediction on declining dollar demand and efforts being made by the Central Bank of Nigeria to boost supply of foreign exchange.

The experts spoke in separate interviews on the outlook of the naira.

“It appears the exchange rate has got to the peak, which is something around 470/dollar. I think  the naira may not go beyond 475/dollar between now and end of December,” a currency strategist at Ecobank Nigeria, Mr. Kunle Ezun, said.

He added that holidaymakers returning to Nigeria for Christmas would also make dollar supply to increase.

According to Ezun, this will reduce the currency volatility created by dollar scarcity.

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said due to declining economic activities, demand for forex was gradually reducing.

This, coupled with efforts being made by the regulator to boost forex supply, will make the naira-dollar exchange rate to remain around the 470 mark in the coming weeks, according to him.

The President, Association of Bureau De Change Operators, Alhaji Aminu Gwadabe, said efforts being made by the CBN to boost supply would make the naira to appreciate in coming months.

He said, “The CBN Governor, Mr. Godwin Emefiele, met with the International Money Transfer Organisations in London on Saturday. The government is trying to woo these operators to enable them to bring more forex into the country. This will boost supply. Already, the exchange rate which the IMTOs can sell dollars to the banks has been increased from 336 to 375.”

He added, “At the association level, we have created committees that will check sharp practices in the market. All these will yield result.”

Market Fundamentals Still Support N135-N145 Pump Price, Says PPPRA, Marketers

The Petroleum Products Pricing Regulatory Agency (PPPRA) and key oil marketers in Nigeria’s downstream petroleum sector have said that the current fundamentals guiding the importation and sale of petrol in the country were still favourable for petrol to be sold within the government-approved pump prices of N135 to N145 per litre.

The PPPRA and marketers which include the Nigerian National Petroleum Corporation (NNPC), Major Oil Marketers Association of Nigeria (MOMAN), and Depot and Petroleum Products Marketers Association (DAPPMA) stated this after an emergency meeting with the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu in Abuja.

The meeting, according to a statement from PPPRA, was convened by Kachikwu as a response to recent news of a possible increase in the pump price of Premium Motor Spirit (PMS).

It was attended by the Group Managing Director of the NNPC, Dr. Maikanti Baru, the Acting Executive Secretary of PPPRA, Mrs. Sotonye Iyoyo, the Acting Executive Secretary of Petroleum Equalisation Fund (PEF), Ahmed Bobboi, as well as the Executive Secretary of MOMAN, Obafemi Olawore, and the Executive Secretary of DAPPMA, Olufemi Adewole.

The statement was however signed by the trio of Iyoyo, Olawore and Adewole, and it stated: “The meeting reviewed the state of the downstream sub-sector, especially as it relates to products supply, distribution, pricing and FOREX sourcing. The meeting also reviewed recent concerns expressed at certain quarters, on the sustainability of the current PMS price band.”

“After exhaustive deliberations, stakeholders present were in the affirmative that the speculations of an imminent upward price review of PMS was unfounded. This position is premised upon the fact that the current market fundamentals, as captured on the PPPRA pricing template for PMS, confirmed that the market is operating within the existing price band of N135-N145 per litre.

“The claim is therefore both unfounded and deceptive, as there is no basis for pricing speculations as being circulated within the last few days,” it added.

The PPPRA from this, assured that the country will continue to have an uninterrupted supply and distribution of petroleum products.

It said the promise was in line with its overall goal of facilitating a vibrant and robust downstream sector, and that Kachikwu has also assured of the federal government’s continued commitment to the welfare and well-being of all Nigerians.

Former Group Managing Directors of the NNPC had last Saturday stated that the that the price cap of N145/litre on petrol was not consistent with the liberalisation policy of the government especially with the foreign exchange rate and other price determining components such as crude cost, Nigerian Ports Authority (NPA) charges, remaining uncapped. They thus suggested that the government’s cap on pump price be taken off to allow for market parity.