Naira Devaluation Looms, CBN Denial to Buy Time
Nigerian Naira devaluation looms amidst the Central Bank of Nigeria’s (CBN) hide-and-seek game despite pointers that micromanaging the FX situation has left the economy, and market worse off.
The apex bank has maintained a ‘no naira devaluation’ stance despite multiple pressures, including worrisome scarcity of foreign currency to meet users’ needs. Against evidence that multi-tiered fx management policy triggers downside risk for a nation that depends largely on imports, the CBN has remained unfazed, declaring open market rate inconsequential.
However, it has continued to stylish devalued the local currency behind the door. Late last year, the apex bank allow forex to decline. In 2022, the naira lost about 10% of its value to an imbalance between demand and supply side.
MarketForces Africa noted that the CBN has not been publishing its reports to allow the public to make an informed judgment. This development started under the current apex bank Governor, Godwin Emefiele.
Last week, a Nigerian newspaper reported that the apex bank sold the United States dollar at N630 at its auction, after a private session with President Bola Tinubu.
The central bank has been adjusting the value of the naira gradually on the spot market to avoid a large-scale devaluation.
Tinubu told All Progressives Congress party governors in Abuja that the country’s multiple exchange rates will be streamlined. “We will not have multiple exchange rates anymore,” he said.
The CBN however debunked the story, saying it was fake news. Historically, the monetary authority hides behind its regulatory veil to keep market data, decisions, and reports away from the people it seeks to serve.
Recall, Tinubu has at his inaugural speech revealed a plan to unify exchange rates in line with market demand.
Naira, according to Broadstreet analysts, is trading above its fair value. In a chat with MarketForces Africa, Kingsley Aigbe CFA, said the CBN is merely postponing the inevitable.
The need to adopt a market clearing rate has been on the front burner as foreign inflow into the country slumped. In part, foreign investors’ apathy was supported by uncertainties triggered by the apex bank capital control.
CBN Auctions FX at N645 – Reuters
The CBN sold the dollar at N645 at its latest auction, results showed on Friday, Reuters reported. Nigeria’s monetary authority held the latest bi-weekly auction on May 26.
Reuter said in April, the CBN auctioned US dollars at N630, saying the naira has weakened faster at auctions than on the spot market, leading many analysts to believe that a devaluation could match the rate traded at the auctions.
In its market note, a multi-assets investment banking firm. CardinalStone Partners said the naira traded as high as N632.00/$ on Friday, 26 May 2023, possibly indicating a shift in CBN’s FX management stance.
Even while the facts are laid bare, the CBN continues to deny devaluation of the naira, casting doubt on the true position of the local currency across FX markets.
Though the naira dropped at the investors’ and exporters’ FX window, the local currency gained at the open market.
Data from FMDQ Exchange showed that the naira depreciated marginally against the US dollar by N0.16 in a week to close at N464.67/$1 from N464.51/$1 in the previous week.
At the interbank foreign exchange forward contracts market, the spot exchange rate remained unchanged closing at N462 per US dollar, according to analysts’ market notes.
Amidst FX rationing, business, and personal traveling allowance to Nigerians were cut to half, according to deposit money banks in separate emails to customers, informing them they also need 60-day notice for processing.
In a chat with MarketForces Africa, FSDH Capital Chief Executive, Tolu Osinibi, attributed the reduced supply of FX to Invisibles, by about half, to the low level of its external reserves.
Nigeria’s gross external reserves would be lowered after you factor in outstanding Forwards, Swaps, Eurobond redemption, etc., FSDH Capital Chief told MarketForces Africa. Osinibi said the CBN has also been delaying the settlement of its FX sales at the retail auctions.
“The sustainable solution is to adjust the FX rate -allow some depreciation- in order to be able to attract real FX flows into the system.
“There are still some credibility issues regarding whether foreign portfolio investors will trust any change in FX policy that’s introduced before the new Administration takes over at the end of May 2023”.
“Also, keep in mind that US$35 billion is gross reserves. We have no idea what the net reserves position is, that is after adjusting for all binding commitments, including Forwards sold, Swaps that have to be unwound, etc.”.
On crude production volume, FSDH Capital boss said, “We have no idea of the percentage of the quoted 1.3 million barrels per day that’s already been presold ages ago in Forward sales.
“Definitely a significant portion; so, we’ve already collected and spent a very big chunk of the money… any positive difference between the current price and the forward price is ultimately to Nigeria’s benefit.
“In any case, a very big chunk of the money was collected and spent ages ago and we’re simply meeting Crude delivery obligations”. In summary, the situation is a supply-side problem that’s being tackled from the demand side; while this may seem to work in the interim, it’s not sustainable. #Naira Devaluation Looms, CBN Denial to Buy Time
