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.
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.
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.
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.