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UPDATED: Devaluation is here as CBN sells dollars at N380/USD

The Central Bank of Nigeria (CBN) has reportedly devalued the Naira. Nairametrics found from a reliable source that the CBN moved the rate of foreign exchange to Foreign Portfolio Investors (FPIs) from N366.70 to N380.20/USD.

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CBN, MPC, Credit risk, LDR, Central Bank of Nigeria, Devaluation

The Central Bank of Nigeria (CBN) sold dollars to banks at N380/$1, Nairametrics can now confirm. Traders confirmed this to Nairametrics this afternoon. This is the highest official exchange rate between the dollar and naira in over two years suggesting a devaluation is in the offing.

Banks trading at the Investor and Exporter (I&E) window bought dollars at N360/$1 from the CBN on Friday March 20, 2020. The I&E window is the official market where forex is traded between banks, the CBN, foreign investors, and businesses. The central bank typically buys or sells in the market as part of its intervention program.

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The central bank in a press release last week said that the “market fundamentals do not support naira devaluation at this time” detailing reasons why it did not need to devalue. Having sold at N380 at the I&E window the CBN has officially accepted the exchange rate has now depreciated officially in line with a drop in oil price. The Brent crude fell below $30 this week as oil prices continued their recent slide in the wake of the price war between Saudi and Russia.

READ ALSO: Forex: Multiple rates scare investors, LCCI to CBN  

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Devaluation confirmed? Nairametrics got hold of a letter from the CBN to banks informing them of the new exchange rate for dollars flowing from the International Money Transfer Operators (IMTOs). According to the CBN, IMTOs will sell to banks at N376/$1 while banks will sell to the CBN at N377/$1. The CBN will sell to BDC’s at N378/$1 while the BDC’s will sell to end-users at “no more than” N380/$1.

The above statement confirms the exchange rate has effectively been devalued today, Friday the 20th 2020. Ironically the BDC association claimed today that they will continue to sell forex at N360/$1 advising customers to stop buying at higher rates without.

Based on this observation and information from BDC members of ABCON, we can categorically state that demand for dollars is at one of its lowest points in the market. Furthermore, CBN has sustained its weekly dollar sale to BDCs at the same level, hence keeping dollar supply constant and eliminating any apprehension of scarcity or rationing of forex. 

“In view of the above, we believe there is no need for anybody to buy dollars from anyone at the exchange rate above the official rate. CBN sells dollars to BDCs at N357 per dollar while BDCs are mandated to sell to the public at N360 per dollar for eligible transactions namely, BTA; PTA; Medicals; Mortgage; and School fees.”

What next: With the exchange rate now devalued, we believe members of the BDC association will have no choice but to comply. Also, Nigerians who wish to travel abroad and looking to purchase FX will have to buy at N380/$1 a 5% devaluation from the N380/$1 it exchanged for before the crash in oil prices. Some analysts believe this may just be the first of many steps as the exchange rate is still considered overvalued especially as the price of crude continues to tank in the global markets.

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It is also expected that as businesses open for work on Monday prices of goods and services that rely on the exchange rate will start to record spikes further worsening Nigeria’s inflation situation. Nigeria’s inflation rate is currently 12.2% and could rise further when businesses start to factor in the cost of the exchange rate.

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Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper. The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference. The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - abiola.odutola@nairametrics.com.

2 Comments

2 Comments

  1. Abi

    March 20, 2020 at 5:58 pm

    Why are you people so negative and all what you do is always about bring the country and the economy down ,what benefit will devaluation of the naira bring than inflation rather why can you talk about step been taken by the bank to insulate the economy from this problem .

  2. Mark

    March 21, 2020 at 8:10 am

    @Abi stop being a cry baby. This pure economics at work. There are not enough reserves to defend the naira and run the state given the price of oil. devaluation is the only way. Yes it will hurt the citizens but during the good times, we were embezzling rather than saving and now the chicken has come home to roost. If oil prices don’t recover and the external reserves drop below 30BN USD, expect another devaluation by market forces. We will be looking at 400 NGN to 1 USD by EOY and that is an optimistic outlook. Brace up because winter is coming and what happened in 2016 will pale in comparison to what is coming.

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Coronavirus

Sanwo-Olu gives incentives to businesses to prevent job loss

Babajide Sanwo-Olu noted that the state is Nigeria’s number one commercial centre and a massive job loss will not bode well for it’s economy

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Bond: Lagos to rAN100 billion for infrastructural development, COVID-19: Lagos asks civil servants to stay at home, No public buses between 7pm and 6am, Okada ban takes effect from May 4 – LASG, No public buses between 7pm and 6am, Okada ban takes effect from May 4 – LASG, Sanwo-Olu gives incentives to businesses to prevent job loss

Lagos state governor, Babajide Sanwo-Olu, has promised that any business that employs a large number of people will receive incentives from the state government in order to prevent massive job loss in the state.

He noted that Lagos state is Nigeria’s number one commercial center and heavy job losses will not bode well for the economy of the state, and the country.

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“We are having conversations with different sectors on the requirements they need to ensure they do not retrench their staff. What many of the companies want will affect the State’s IGR but we are willing to make the sacrifice to prevent the loss of livelihood of our citizens,” the governor stated.

The phased reopening of the economy

The governor explained in his tweet that all businesses were still required to follow the Register-to-open initiative, and put all facilities in place before they would be allowed to reopen.

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(READ MORE: COVID-19: Best and worst case scenarios for the Nigerian economy)

According to him, the state will consider companies in the construction and manufacturing sector as top priority in the first stage of the reopening, while businesses in the entertainment and hospitality sector will be considered for reopening in the second phase, as the state tries to balance economic reactivation with COVID-19 management.

“We are caught between managing hunger & sustaining an economy that is not only dependent on commercial activities in Lagos alone but also in other states.  

“We are at the stage where we have to balance public health safety & the economy that affects the wellbeing of the people” Sanwo-Olu stated. 

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He urged Lagosians to support the government in breaking the cycle of transmission, by adhering to the guidelines from the authorities.

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Around the World

Air Peace to evacuate stranded Indians from Lagos to Kerala

A list of the passengers to be attended to has already been given and the flight shall depart Lagos on May 30, 2020, to Cochin Airport, Kerala.

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Air Peace signs deal with Brazillian aerospace company , Air Peace suspends flight operations over COVID-19

The management of Air Peace Nigeria has been contacted by the Indian High Commission in Nigeria to undertake the evacuation of stranded Indian nationals to Kerala, India. This was disclosed by the airline via its Twitter handle.

The airline explained that a list of passengers that would be attended to have been released and it has started reaching out to the Indians on Saturday.

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It stated, “A list of the passengers to be attended to has already been given to us and we have commenced reaching out to them. The flight shall depart Lagos on May 30, 2020, to Cochin Airport, Kerala.”

The flight is not free anyway. According to the airline, payments are expected immediately and they are Economy is $1.300 and Business class is tag $1,700. “You are equally allowed to pay in Naira at N460/$,” it added.

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However, some Indians in Nigeria has reacted with mixed feelings to the development on Twitter. While some were ready to join the flight back home, others called for the refund of ticket fare booked a week ago.

READ ALSO: Hope rises as Emefiele set to meet MTN, 4 banks today.

For instance, Jayant Khamesra requested for the refund ticket fare of N568, 100, which he paid for a flight from Lagos to Delhi.

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He said, “Please refund ticket fare P47812 LAGOS to DELHI. No show by Air Peace and it is been 1 week now, there has been no refund or confirmation of the same. Reference ALHN79 amount N568,100. I am sure a good world-class carrier like Air Peace won’t delay refunds purposely. Please act fast.

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Coronavirus

The World’s Economy may not survive without a vaccine

Industries like tourism and travel with social distancing rules in place will only scramble for the little they can get while sports stadiums, entertainment hot-spots, etc., will remain closed.

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The World’s Economy may not survive without a vaccine

As parts of the world restart economic activities, it is becoming clear that the worst plunge in modern history would need a vaccine or cure before things can revert to normal.

In response to the exogenous shock that is the Covid-19 pandemic, leaders, researchers, analysts, and experts have sought methods, options, – anything to reduce the negative impact of what many now regard as the worst slump since the 1930s. So far, different parts of the world have put systems and structures in place to allow a level of economic activity to continue as it became increasingly clear that full social welfare was simply unsustainable. This is, however, not without the existence of relevant restrictions like temperature checks, social distancing rules, and the latest fashion accessories – masks and gloves.

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READ ALSO: Nigerian economy going into recession, might contract by -8.9% – Finance Minister

While this is an admittedly better development than the enforced total lockdown – at least for the economy, this too has its limitations. Economic activities have taken on a sluggish growth pace and while production might continue, global demand remains hamstrung. Industries like tourism and travel with social distancing rules in place will only scramble for the little they can get. Sports stadiums, entertainment hot-spots, etc., will remain closed. Even with the increased dependence of delivery services, restaurants will struggle to make what they used to before. Jobs have been cut and even more will. In essence, the partial reopening of the economy isn’t also sustainable. Yet, it is impossible to ignore the virus itself especially given the risks of a resurgence of the virus in already treated patients and the increasing cases in many parts of the world.

Data obtained from Bloomberg revealed that people infected around the world reached 5 million with a death toll of over 330,000. With the pandemic still on our tails, finding a vaccine is our best bet – and nothing else might be able to beat that. Stephen Jen, CEO of Eurizon SLJ Capital – hedge fund and advisory firm in London told Bloomberg News that there’s some sort of bounty on the virus globally.

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READ MORE: Osinbajo sets up committee on reopening of Nigerian economy, suspends loan deductions for states

In his words, “I don’t see how it is wiser for investors to bet on the virus than to bet on science, technology, and unlimited political and financial capital in the world to contain and defeat the virus.”

Also, the shares of American drug maker based in Massachusetts, Moderna Inc., hit a record high early in the week, as a result of its early data from a small trial of the company’s Covid-19 vaccine. It, however, gave up some of those gains days after stock traders scrutinized the early nature of the vaccine data.

Bloomberg Economics predicts that the restriction and shutdown of businesses triggered a plunge in economic activities of about 30% and their findings found that the first steps to relax controls will have a good impact on activity than later ones. Yet, our optimism is palpable. Anita Zaidi, Director of Vaccine Development and Surveillance at the Bill & Melinda Gates Foundation have advised that the process of creating an effective immunity could take years, and even then it will have to solve the issue of logistics that is making the vaccine readily available globally.

Today, the world waits in hope that this too passes like many of its predecessors. While it will indeed pass, there still is no saying how long it will take before life reverts to a new but sustainable normal.

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