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Naira crashes across forex markets as CBN Governor hits at black market

At the black market, the Naira depreciated against the dollar to close at N487/$1 on Wednesday.

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Naira depreciates as dollar sales top $100m a day at I&E window, Global Investment Trends Monitor, Foreign Direct Investment

Forex turnover dropped by 68.2%, as the Naira’s exchange rate at the NAFEX window depreciated significantly against the dollar to close at N393.25/$1 during intra-day trading on Wednesday, November 25.

Also, the naira crashed further against the dollar, closing at N487/$1 at the parallel market on Wednesday, November 25, 2020, as the CBN Governor who alleged that the black market is a tainted market used for bribe and corruption, said the Nigerian official exchange rate should not be determined by the rate at the parallel market.

The CBN, a few days ago relaxed its earlier policy on banning third parties from having access to foreign exchange routed through Form M.

Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N487/$1 on Wednesday.

(READ MORE: Naira falls to weakest level in 6 weeks at black market despite CBN intervention)

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This represents an N4 drop when compared to the N483/$1 that it exchanged for on Tuesday, November 24.

  • The local currency had strengthened by about 7.8% within one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers.
  • This is to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders.
  • The CBN has sold about $1 billion to BDCs since they resumed forex sales on Monday, September 7, 2020.
  • This was expected to inject more liquidity into the retail end of the foreign exchange market and discourage hoarding and speculation.
  • However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
  • The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects the impact of the extra liquidity in the market to be gradual.
  • Despite the drop in speculative buying of foreign exchange, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.

(READ MORE: Naira stabilizes at black market as CBN continues its intervention in forex market)

NAFEX: The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N393.25/$1.

  • This represents an N7.75 gain when compared to the N385.50/$1 that it exchanged for on Tuesday, November 24.
  • The opening indicative rate was N386.29 to a dollar on Wednesday. This represents a 33 kobo drop when compared to the N385.96 that was recorded on Tuesday.
  • The N395 to a dollar was the highest rate during intra-day trading before, it still closed at N393.25 to a dollar. It also sold for as low as N383/$1 during intra-day trading.
  • Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 68.2% on Thursday, November 19, 2020.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $163.87 million on Tuesday, November 24, 2020, to $52.09 million on Wednesday, November 25, 2020.
  • The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
  • The drop in dollar supply after some trading days of improvement reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
  • The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.
  • Total forex trading at the NAFEX window in the month of September was about $1.98 billion, compared to $843.97 million in August.

READ: Dangote cement post a 52-week high, investors gain N224 Billion

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  • The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
  • A financial expert and Managing Director of Financial Derivatives had stated that he expects the exchange rate at the parallel market to likely depreciate to N470-N475/$1 in November and December due to low oil prices that will further limit foreign exchange supply.
  • Some members of MPC of the CBN have expressed serious concerns over the increasing demand pressure in the country’s foreign exchange market. This is an obligation of manufacturers to their foreign suppliers that continues to increase in the face of dollar shortages.

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

1 Comment

1 Comment

  1. EBENEZER

    November 26, 2020 at 8:36 pm

    Will this affect MBA forex traders or trading

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Currencies

CBN frowns at continued diaspora remittances in naira, introduces sanctions

The CBN has frowned at activities of some IMTOs and unlicensed companies who continue to facilitate diaspora remittances into the country in Naira.

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The Central Bank of Nigeria (CBN) has frowned at activities of some International Money Transfer Operators (IMTOs) and unlicensed companies who continue to facilitate diaspora remittances into the country in Naira.

The apex bank’s reaction follows the contravention of its earlier directive that all diaspora remittances must be paid to the beneficiaries in dollars.

This disclosure was contained in a circular titled, ‘Modalities for Payout of Diaspora Remittances’, issued by the CBN on Friday, January 22, 2021, and signed by its Director Trade and Exchange Department, Dr O.S. Nnaji.

READ: CBN revokes licenses of 7 Payment Service Providers

What the CBN is saying

The CBN in its circular said, ‘’Further to our circular titled ‘Receipt of Diaspora Remittances: Additional Operational Guidelines’, it has come to our notice that some IMTOs and unlicensed companies continue to facilitate diaspora remittances into the country in Naira, “in clear contravention of the Central Bank of Nigeria directive that all remittances be paid to beneficiaries in dollars.’’

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READ: More pressure on the naira as Diaspora remittances to drop by 20%

For the avoidance of doubt, the Central Bank of Nigeria further clarifies as follows;

  1. Only licensed IMTOs are permitted to carry on the business of facilitating diaspora remittances into Nigeria;
  2. All diaspora remittances must be received by beneficiaries in foreign currency only (cash and /or transfers to domiciliary accounts or recipients);
  3. IMTOs are not permitted, under any circumstances, to disburse diaspora remittances in Naira (either in cash or by electronic transfers), be it through remittance settlement accounts (which had been earlier directed to be closed), third party accounts or via any other payment platforms within and/or around the Nigerian financial system.’’

READ: Nigeria’s forex devaluation timeline – 2020

The apex bank in the circular said that the measures were intended to promote transparency, grow diaspora remittances and significantly improve foreign exchange inflows into Nigeria.

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The CBN warned that strict sanctions, including withdrawal of operating licenses, shall be imposed on any individuals and/or institutions found to be aiding, abetting or directly contravening these guidelines.

It went further to say that it shall not hesitate to authorize the closure of the accounts of unlicensed operators in Nigerian banks, including being barred from accessing banking services in Nigeria.

It promised continued monitoring of developments in this regard, adding that it would also issue further guidance as appropriate.

READ: Continuous increase in inflation rate may weaken economy – CBN report

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What this means

With the insistence of the apex bank on its earlier directive, it means that Nigerians living in the diaspora can transfer foreign currency to their relatives and loved ones in the country, who in turn will withdraw the money in dollar cash and sell anywhere they so desire.

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It means they can for instance receive foreign transfers such as Western Union or Moneygram, withdraw it in dollars and then sell at the black market rate or anywhere else they want to. This they believe will help to stabilize the exchange rate and discourage hoarding.

READ: UBS warns Bitcoins could disappear like Myspace

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What you should know

  • It can be recalled that the CBN, had in November 2020, amended the procedure for the receipt of diaspora remittances and insisted that it must be paid in dollars to the beneficiaries, in an apparent and frantic attempt to improve liquidity in the forex market and reduce the disparity between the black market and the official window.
  • Also in an additional guideline for diaspora remittances, the CBN barred IMTOs from sending money to Mobile Money Operators and also stopped the integration of payment services providers to IMTO accounts. It also stopped switches and processors from getting involved in foreign remittances.

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Currencies

Naira gains marginally at NAFEX window, exchange rate to remain stable

The exchange rate between the naira and the dollar appreciated closing at N394/$1 at the NAFEX window.

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Dollar, Exchange rate, FOREX, NAFEX market turnover drop by 59%, Naira crashes to N470/$1 as currency uncertainty worsens 

On January 21, 2021, the exchange rate between the naira and the dollar appreciated closing at N394/$1 at the NAFEX (I&E Window) where forex is traded officially.

However, during intraday trading, the exchange rate traded for as high as N415.76/$1, sustaining yesterday’s figure which is the highest intraday trading tracked by Nairametrics. Forex turnover, however, dropped by about 14% as pressure on the foreign exchange market continues.

READ: Naira stabilizes at black market as external reserve rises by $515 million in 12 days

According to a report from Reuters, the naira is expected to remain stable in the coming week as currency traders watch for policy details at CBN’s first MPC meeting in 2021.

Also, the exchange rate at the black market where forex traded unofficially still remained flat at N475/$1. The exchange rate at the parallel market closed at N475/$1 on the previous trading day of January 20, 2021.

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The exchange rate disparity between the parallel market and the official market is about N81, representing a 17% devaluation differential.

READ: Naira strengthens at NAFEX window despite 38% drop in dollar supply

The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Thursday, closing at N394/$1. This represents a 17 kobo gain when compared to the N394.17/$1 that it closed on the previous trading day.

  • The opening indicative rate was N394.16 to a dollar on Thursday, the same rate that was recorded on Tuesday, January 20, 2021.
  • The N415.76 to a dollar was the highest rate during intra-day trading before it closed at N394 to a dollar. It also sold for as low as N390/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window dropped by 13.9% on Thursday, January 21, 2021.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover declined from $89.50 million on Wednesday, January 20, 2021, to $77.04 million on Thursday, January 21, 2021.
  • The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
  • There are fears that the exchange rate at the black market might be under pressure in the coming weeks as importers scramble for dollars to meet their demands.

READ: The dangling fate of indigenous oil upstream operators

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Oil price steady rise

Brent crude oil price is at about $56 per barrel on Wednesday, as it moves towards the $60 mark, a strong sign that global demand could sustain price increases in 2021.

  • This appears as a boost to Nigeria as the country’s crude oil price benchmark for 2020 was $40 while it projected an oil production output of 1.8 million barrels per day.
  • Nigeria has a production capacity of 2.5 million barrels per day but is subject to OPEC’s crude oil production cuts, which are expected to help sustain higher oil prices.
  • The higher oil prices and steady production output have positively impacted Nigeria’s external reserves, rising sharply to $36.304 million according to central bank data dated January 14, 2020.
  • This is the highest level since July 2020 and a sign that higher oil prices and steady output levels may be contributing significantly to Nigeria’s foreign exchange position.

READ: Nigeria faces prolonged exchange rate crisis as oil prices remain stuck at $40

Nigeria rising external reserves

  • The external reserve has risen to $36.464 billion as of January 19, 2021.
  • Nairametrics reported on Wednesday that the government may have taken receipt of the $1-1.5 billion World Bank Loan.
  • The external reserves have increased by $1.09 billion since December 31, 2020, when it closed the year at $35.3 billion.
  • Nigeria also needs the external reserves to hit $40 billion if it is to adequately meet some of the pent up demand that has piled up since 2020 when oil prices crashed and the pandemic caused major economic lockdowns.

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Currencies

Official (NAFEX) Exchange rate hits N415/$1 during Intra-day trading

The exchange rate at NAFEX trades at N415/$1 during Intra-day trading NAFEX as forex turnover rises by 233% rise

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Naira falls across forex markets as businesses resume after public holidays

On January 20, 2021, the exchange rate between the naira and the dollar depreciated closing at N394.17/$1 at the NAFEX (I&E Window) where forex is traded officially.

However, during intraday trading, the exchange rate traded for as high as N415.76/$1 the highest intraday trading tracked by Nairametrics. Forex turnover also rose significantly by 233.6% as demand puts pressure on the foreign exchange market.

On the flip side, the exchange rate at the black market where forex traded unofficially still remained stable at N475/$1. The exchange rate at the parallel market closed at N475/$1 on the previous trading day of January 19, 2021.

READ: Naira strengthens at NAFEX window despite 61% drop in dollar supply

The exchange rate disparity between the parallel market and the official market is about N80.83, representing a 17% devaluation differential.

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The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N394.17/$1. This represents an 82 kobo gain when compared to the N393.35/$1 that it closed on the previous trading day.

READ: FIRS hits 98% of target as it collects N4.95 trillion for 2020 fiscal year

  • The opening indicative rate was N394.17 to a dollar on Wednesday, representing a 21 kobo drop when compared to the N393.96 that was recorded on Tuesday, January 19, 2021.
  • The N415.76 to a dollar was the highest rate during intra-day trading before it closed at N394.17 to a dollar. It also sold for as low as N390/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window increased significantly by 233.6% on Wednesday, January 20, 2021.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover rose from $26.83 million on Tuesday, January 19, 2021, to $89.50 million on Wednesday, January 20, 2021.
  • The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.
  • The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
  • There are fears that the exchange rate at the black market might be under pressure in the coming weeks as importers scramble for dollars to meet their demands.

READ: Naira falls at black market despite over 100% improvement in dollar supply

Oil price steady rise

Brent crude oil price is at about $56 per barrel on Wednesday, as it moves towards the $60 mark, a strong sign that global demand could sustain price increases in 2021.

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  • This appears as a boost to Nigeria as the country’s crude oil price benchmark for 2020 was $40 while it projected an oil production output of 1.8 million barrels per day.
  • Nigeria has a production capacity of 2.5 million barrels per day but is subject to OPEC’s crude oil production cuts, which are expected to help sustain higher oil prices.
  • The higher oil prices and steady production output have positively impacted Nigeria’s external reserves, rising sharply to $36.304 million according to central bank data dated January 14, 2020.
  • This is the highest level since July 2020 and a sign that higher oil prices and steady output levels may be contributing significantly to Nigeria’s foreign exchange position.

READ: Naira falls at NAFEX window despite 56.6% improvement in dollar supply

Nigeria rising external reserves

  • The external reserve has risen to $36.464 billion as of January 19, 2021.
  • Nairametrics reported on Wednesday that the government may have taken receipt of the $1-1.5 billion World Bank Loan.
  • The external reserves have increased by $1.09 billion since December 31, 2020, when it closed the year at $35.3 billion.
  • Nigeria also needs the external reserves to hit $40 billion if it is to adequately meet some of the pent up demand that has piled up since 2020 when oil prices crashed and the pandemic caused major economic lockdowns.

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