On January 26, 2021, the exchange rate at the black market where forex traded unofficially depreciated at N480/$1. The exchange rate at the parallel market closed at N477/$1 on the previous trading day of January 22, 2021, representing a N3 drop.
Why Naira is depreciating
- This can be attributed to demand pressure in the foreign exchange market as economic activities resumed in earnest following the end of the Christmas and New year holidays.
- Forex dealers also inform Nairametrics that an increase in demand from Nigerians looking to send their wards back to school abroad has also piled pressure on the demand for the greenback.
- A cross-section of importers have also resumed import activities piling pressure on the black market to meet their forex demands.
To streamline supply and ensure there is enough to meet rising demand, the CBN moved to ensure strict monetary control of the forex market threatening to expel exporters who refuse to remit foreign exchange proceeds in the NAFEX market. It also warned against paying diaspora remittances in naira.
The CBN may have also confirmed the forex pressures businesses are facing in its monetary policy communique of January 26, 2020 when it cited it as a reason for the weak purchasing managers index.
“This weak performance was attributed to the resurgence of the pandemic, foreign exchange pressures, increased costs of production, general increase in prices and decline in economic activities.”
Trading at the official NAFEX window
The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Tuesday, closing at N394/$1. This represents a 50 kobo gain when compared to the N394.50/$1 that it closed on the previous trading day.
- The opening indicative rate was N393.60 to a dollar on Tuesday, representing a 30 kobo drop when compared with the N393.30 to a dollar that was recorded on Monday, January 25, 2021.
- The N396 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 rose significantly by 170.9% on Tuesday, January 26, 2021.
- According to the data tracked by Nairametrics from FMDQ, forex turnover increased from $39.99 million on Monday, January 25, 2021, to $108.34 million on Tuesday, January 26, 2021.
Oil price steady rise
Brent crude oil price rose to about $55.87 on Wednesday morning as US crude stockpiles decrease by about 5.2 million barrels last week. A higher crude oil draw (a decrease in crude oil inventory) is attributed to higher refining activities in the world’s largest economy.
- Oil prices have been dragging since last week after the IEA released a report that slashed its outlook for oil in 2021.
- According to the IEA, “Global oil demand is expected to recover by 5.5 mb/d to 96.6 mb/d in 2021, following an unprecedented collapse of 8.8 mb/d in 2020. For now, a resurgence in Covid-19 cases is slowing the rebound, but a widespread vaccination effort and an acceleration in economic activity is expected to spur stronger growth in the second half of the year.
- “After falling by a record 6.6 mb/d in 2020, world oil supply is set to rise by over 1 mb/d this year, with OPEC+ adding more than those outside the bloc. There may be scope for higher growth given our expectations for further improvement in demand in 2H21. After holding flat at 92.8 mb/d in December, global supply is rising this month with OPEC+ due to ramp up during January.
- Nigeria needs oil prices to stay above $50 to balance its budget and improve on its 2021 revenue projection of N6.6 trillion for the year.
- Nigeria’s 2021 budget includes a target crude oil benchmark price of $40/barrel and crude oil production of 1.86 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.
Higher oil prices drive up Nigeria’s external reserves
- The external reserve has risen to $36.508 billion as of January 21, 2021.
- Nairametrics had earlier reported that the government may have taken receipt of the $1-1.5 billion World Bank loan. However, excerpts of the CBN Monetary Policy communique of January 26th suggest the inflows may have been driven by higher oil revenues.
- According to the CBN, “On the external reserves position, the Committee noted the increase in the level of external reserves, which stood at US$36.23 billion as at 21st January, 2021 compared with US$34.94 billion at the end of November 2020. This reflected improvements in crude oil prices, partial global economic recovery amid optimism over the discovery and distributions of COVID-19 vaccines by most developed economies.”
- The external reserves have increased by $1.135 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.
Naira starts week at N411/$1 as oil price finally hits $70
Naira depreciated against the US Dollar on Friday as it closed at N411 to a dollar at the NAFEX window as oil price rallies to $69.36 per barrel
Friday 5th March 2021: The exchange rate between the naira and the US Dollar closed at N411/$1 at the Investors and Exporters window, where forex is traded officially.
Naira depreciated against the US Dollar on Friday as it closed at N411 to a dollar at the NAFEX window, representing a 1.11% decline when compared to N406.5/$1 recorded on the previous day.
Meanwhile, the naira remained stable against the dollar in the parallel market to close at N480/$1 on Friday, March 5, 2021. This was the same rate that it closed on the previous trading day (Thursday).
Forex turnover, however, increased by 25.3% on Friday to stand at $83.93 million compared to $66.99 million recorded on Thursday, while crude oil prices are edging closer to the predicted $70 per barrel in the global oil market.
Trading at the official NAFEX window
The Naira depreciated against the US Dollar at the Investors and Exporters window on Friday to close at N411/$1. This represents a N4.5 loss when compared to N406.5 recorded on the previous trading day.
- The opening indicative rate closed at N412.5/$1 on Friday. This represents a N1.4 drop when compared to N411.1/$1 recorded on Thursday.
- Also, an exchange rate of N415 to a dollar was the highest rate during intra-day trading before it closed at N411/$1. It also sold for as low as N392.5/$1 during intra-day trading.
- Forex turnover at the Investor and Exporters (I&E) window rose by 25.3% on Friday, March 5, 2021.
- According to the data tracked by Nairametrics from FMDQ, forex turnover increased from $66.99 million recorded on Thursday, March 4, 2021, to $83.93 million on Friday, March 5, 2021.
The world’s largest cryptocurrency, Bitcoin gained 2.33% to trade at $50,044.64 as at 10.27 pm on Sunday, 7th February 2021. a come back from it severe dip recorded last week.
- Meanwhile, Ether ETHUSD, the coin linked to the ethereum blockchain network, rose by 0.75% to $1,663.5 on Sunday, 7th March 2021.
- Ether’s value has moved fast over the past 24-hours. After breaching above $1,500 towards the late hours of Friday, the asset managed to position itself above $1,600 within the next 24-hours.
- Ethereum is currently pushing towards the $1700 mark at press time, while most altcoins are far-behind on the daily returns.
- According to a recent report, Nigeria has seen about a 15% surge of activity in peer-to-peer transactions since the Central Bank of Nigeria issued a circular reminding financial institutions in Nigeria about the prohibition in crypto-related transactions.
- Also, another report showed that Nigeria led Africa’s peer-to-peer transactions in the last 30 days, as it posted monthly P2P volumes of about $31 million, followed by the Kenyans and Ghana each posting about $12.1 million and $8.4 million respectively.
Oil prices edge closer to $70 per barrel
Brent Crude oil rose by 1.98% early Monday morning to close at $70.73 when compared to $69.63 recorded on the previous trading day.
- Oil price has recorded a significant increase since Thursday after OPEC+ decided to hold off on easing production cuts for another month, surprising the oil market.
- Oil prices have extended the gains recorded on Thursday after the OPEC+ meeting, as Brent Crude and WTI gained an additional 3% on Friday upon the 3% gain recorded in the previous day.
- This comes close $70 per barrel, predicted by Goldman Sach earlier in the month of February 2021.
- WTI Crude closed at $67.41 (2.00%), OPEC Basket $62.15 (+0.29%), Bonny Light $67.69 (+2.37%), and Natural Gas $2.701 (-1.64%).
External reserves persistent decline
Nigeria’s external reserve continued its decline as it dropped by 0.11% on Thursday, 4th March 2021 to stand at $34.88 billion compared to $34.92 billion recorded as of March 3, 2021.
- This represents the lowest reserves position since December 8, 2020, when it stood at $34.84 billion.
- The current reserves also represent a $495.98 million decline when compared to $35.37 billion recorded as of 31st December 2020.
- Worthy of note is the fact that Nigeria’s external reserve has continued to record declines since the month of January despite the increase in the price of crude oil in the global market. This might be attributed to the CBN forex market intervention aimed at managing the country’s exchange rate volatility.
CBN explains why it introduced cash for dollar scheme
In a series of tweets on the evening of the 6th of March, the Twitter handle of the Central Bank of Nigeria explained why it offered the Naira4Dollar Scheme in favour of diaspora Nigerians who are seeking to inflow money into Nigeria.
We had a fair look at the tweets that we have annotated for our readers. Here it goes.
1. Consistent with the global trend, Nigeria aspires to ensure that remittance flows and diaspora investments become a significant source of external financing.
What this means: The CBN is essentially admitting that foreign remittances (from Nigerians abroad) is important to boosting dollar liquidity.
2. In an effort to reduce the cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, the #CBN has introduced a rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs licensed by the CBN. The Scheme will take effect on the 8th of March 2021.
What this means: The target of the CBN are Nigerians in the diaspora who they want to offer N5 for every $1 remitted to Nigeria. While the target is diaspora remittances, the people who will benefit are their family, friends, or loved ones who withdraw the money from the bank.
3. We believe this new measure will help to make the process of sending remittances through formal bank channels cheaper and more convenient for Nigerians in the diaspora. #Emefiele
What this means: They opine that sending remittances through Nigerian banks ends up being cheaper and convenient. In reality, they appear to be targeting other channels of remitting money to Nigerians. For example, rather than pay excess transfer charges, you transfer the money through a Nigerian bank and then get an extra N5 for each dollar. However, they will have to contend with thousands of Nigerians who simply embark on peer-to-peer exchanges. Nigerians who live in the US or Canada often prefer to sell the dollars to Nigerian living in Nigeria but who need dollars abroad.
4. New FX policy will create an easier, more flexible, and more transparent, system of remittance administration, it will greatly enhance the benefits of diaspora remittances in supporting investments and growth in Nigeria. #Emefiele
What this means: This is essentially a promo pitch. It is all about competing for your remittances. They want you to route through the bank rather than the black market.
5. Policy on the administration of remittance flows is aimed at increasing the transparency of remittance inflows, reducing rent-seeking activities, and providing Nigerians in the diaspora with cheaper and more convenient ways of sending remittances to Nigeria. #Emefiele.
What this means: This is a veiled attack on other competing and probably more beneficial ways of remitting money to Nigeria. Increasing Transparecy is basically allowing the CBN to track dollar inflows from Diaspora Nigerians and see which sectors it is flowing into.
6. PwC forecasts suggest that Nigeria’s remittance flows could reach US$34.89 billion by 2023. But this can only be accomplished if remittance infrastructure improves and if the right policies are put in place.
What this means: Interesting to note that the PWC forecast quoted by the CBN is based on data obtained from the World Bank and IMF, who in turn also base their data from the CBN and other sources.
7. The use of reimbursements of remittance fees has been critical in supporting improved inflow of remittances to countries in South Asia and in improving their balance of payments position following the COVID-19 pandemic.
What this means: The CBN appears to have modeled this new scheme on similar policies in Asian countries. Bangladesh also has a similar scheme.
Consistent with the global trend, Nigeria aspires to ensure that remittance flows and diaspora investments become a significant source of external financing. #Emefiele
— Central Bank of Nigeria (@cenbank) March 6, 2021
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
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