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Currencies

FG rejects IMF’s advice to devalue the naira

Nigerian Government has disagreed with the recommendations of the IMF to further devalue the naira.

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Naira remains stable at the black market, Brent crude moves past $40 per barrel, Where to invest N500,000 right now, Naira crashes to new record low at black market as businesses divert export proceeds,Naira crashes to N500/$1 at black market as CBN adjusts exchange rates

The International Monetary Fund (IMF) said that the Nigerian Government disagrees with its recommendations that it should further devalue the naira, which is over 18% overvalued so as to ease external imbalances.

This is also as the Bretton wood organization had recommended a gradual and multi-step approach to establish a unified and clear exchange rate regime with the near-term focus on allowing for greater flexibility and removing the payments backlog.

This disclosure is contained in the IMF’s Article 1V report for Nigeria which was published on Monday, February 8, 2021.

READ: FG needs fundamental policy reset to durably exit economic crises – IMF

According to a report by Bloomberg, the report says that President Muhammadu Buhari’s administration sees pressure in the foreign exchange market as due to global outflows caused by the coronavirus pandemic and believes another round of currency devaluation would add to double-digit inflation.

The government said that exchange rate stability has contributed significantly to price stability, a critical component and objective of macroeconomic policy. It said that a further devaluation of the naira could worsen economic situation including inflation.

The present administration has resisted increasing calls by some businesses and state governors who have been negatively impacted by an artificially overvalued naira to allow a flexible and liberalized exchange rate.

READ: Naira falls further at NAFEX as external reserves loses $323 million in 11 days

This also contradicts expectations from market operators and analysts, who have called for further devaluation of the local currency despite CBN’s downward adjustment of the exchange rate after a crash in global oil prices due to the coronavirus pandemic.

While calling for the unification of the various exchange rates and the removal of restrictions on access to dollars for the importation of some items, the IMF urged the Federal Government to do away with the premium paid in the black market and clear the backlog of dollar demand that has hurt policy credibility.

The IMF Mission Chief in Nigeria, Jesmin Rahman, at an interview before the release of the report said, ‘’The IMF’s recommendation is gradual but clear and multi-step exchange-rate reforms, so that everybody knows where Nigeria’s going, which is often more important than what you do in terms of devaluation.’’

READ: CBN and cryptocurrency ban

What you should know

  • The IMF had always advocated for more transparency and flexibility in foreign exchange and had called on the Nigerian authorities to commence the process of the unification of the various exchange rates.
  • The unification of the exchange rate is critical in the establishment of policy credibility, encourage more foreign capital inflow, reduce the high rate of CBN’s intervention in the forex market with negative impacts on the country’s external reserve and can lead to an appropriately valued exchange rate.
  • It can be recalled that Nigeria, in 2020, devalued the official rate of the naira twice in the wake of the crash in oil prices (contributes about 90% of the country’s foreign exchange earnings).

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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]

5 Comments

5 Comments

  1. David

    February 9, 2021 at 6:58 pm

    You did not offer a professional opinion. I’d like that too.

    Personally, I feel if we always have to devalue our currency every time an external shock happens we might as well just stop having an exchange rate policy. These things will always happen and if leaders will think long term instead of continuous short term policies, we’d actually have a chance to grow.

  2. Flourish Abumere

    February 9, 2021 at 10:58 pm

    Further devaluation can not be tolerated anymore. The inflation will be extremely harsh. Our Naira is so weak and it’s such a shame.

  3. Success

    February 10, 2021 at 12:03 pm

    Devaluation of naira is one the thing that cause us the problem we are in today. Trace back to 1986 when Nigeria did the Structural Adjustment Program and the first devaluation of naira was done. The white men told our fathers that Nigeria should keep devaluing the naira for 30yrs till now we got to 1$ is now #500 and you still want us to devalue again. Are you insane?

  4. Anodebenze

    February 10, 2021 at 3:03 pm

    You are right david,nairametric didnot offer the pro and con of devaluing the naira,naira have been or being devaluing for more than 35 yrs,my comment is, i thought nairametric will expand on the minister of finance comment,that the ministry of finance is having talks with the central bank on doing,some home grown forex bond,using,nigerian forex reserve in nigeria.
    if they do that,there is no need to devalues the naira,as it is supply and demand,so they can uses this bond to supply forex to matches the naira.i think that this govt is under duress by some past nigerian leader, to do this supply and demand toreactifies the mistake of SAP

  5. Stanley

    February 18, 2021 at 9:42 am

    In my opinion, a devaluation by 10-12% would help make the FX available to local manufacturers for importation of raw materials, machinery and equipment. I do not think this would increase inflation since most businesses in the country are already sourcing their FX from the parallel market for obvious reasons.Perhaps this is already reflecting in retail prices, hence the high inflation rate.

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Currencies

Exchange rate weakens at NAFEX window as oil price hit $67

Naira lost 20 kobo against the US Dollar on Wednesday to close at N408.8/$1 at the NAFEX window, while oil price hit $67 per barrel

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Forex, Nafex, parallel market, exchange rate, Naira, Dollar

Wednesday 24th February 2021: The exchange rate between the Naira and the US Dollar closed at N408.8 to a dollar at the Investors and Exporters window where forex is traded officially.

Naira lost 20 kobo against the US Dollar to close at N408.8/$1 at the NAFEX window, which represents a 0.05% decline compared to N408.6/$1 recorded on Tuesday.

Meanwhile, the exchange rate remained stable in the parallel market, as it closed at N480/$1 on Wednesday, the same as recorded on the previous trading day.

Brent Crude oil appreciated on Wednesday to close above $67 per barrel, which is only less than $3 from the predicted $70 per barrel made by Goldman Sach earlier in the week.

Trading at the official NAFEX window

Naira depreciated marginally against the US Dollar in the Investors and Exporters window on Wednesday, as it closed at N408.8/$1. This represents a 0.05% loss when compared to N408.6/$1 recorded a day earlier.

  • The opening indicative rate closed at N409.5 to a dollar on Wednesday. This is the same as recorded on Tuesday and is the highest recorded since January 5th, 2021.
  • Also, an exchange rate of N429.75 to a dollar was the highest rate during intra-day trading before it closed at N408.8/$1. It also sold for as low as N390/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window increased by 72.2% on Wednesday, February 24, 2021.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover increased from $123.37 million recorded on Tuesday, February 23rd, 2021, to $212.43 million on Wednesday, February 24th, 2021.
  • A cursory look at the data shows that Wednesday’s figure of $212.43 million is the highest turnover recorded since 14th January 2021, over a month ago.

Cryptocurrency watch

The world’s flagship crypto, bitcoin recovered partly from its precarious fall on Wednesday, after U.S. Treasury Secretary Janet Yellen and Elon Musk weighed in on Bitcoin’s recent rally.

  • Bitcoin, which at one point lost about $13,000 in value after dropping from its all-time high of $58,330.57 to $45,290.59 within the space of two days.
  • On Wednesday, Bitcoin traded at $49,486.36 as it solidifies its position as the most valuable crypto asset with a market value of $922.3 billion.
  • Meanwhile, major financial leaders have supported the bias of the Central Bank of Nigeria in placing a ban on crypto-related transactions.
  • They warn investors and the public of the dangers of owning bitcoin, as they also stated that the popular crypto asset could be ideal for money laundering and illicit transactions

Oil prices hit $67

Brent crude oil price rose by 2.89% on Wednesday to close at $67.26 compared to $65.37 recorded on Tuesday 23rd February 2021.

  • The increase in price is as a result of Goldman Sach’s prediction that oil prices would climb around $70 per barrel in the second quarter of the year and $75 in Q3 2021. This is $10 above its previous forecasts.
  • According to a report, the increase in oil prices could also be attributed to the restoration of around 80% of lost production after the Texas freeze that had reduced oil supply in recent weeks.
  • Meanwhile, Saudi Arabia and Russia are heading to the OPEC+ meeting next week with varying opinions on whether to add more supply to the market in April, which could shape the performance of the oil market.
  • However, Brent closed at $67.26 (+2.89%), WTI closed at $63.22 (+2.51%), Bonny Light at $63.73 (+1.43%), OPEC Basket ($63.73), and Natural Gas closed at $2.854 (-0.87%).

Dwindling external reserve despite increased oil price

Nigeria’s external reserve dipped marginally by 0.14% on Tuesday 23rd of February 2021, to stand at $35.23 billion.

  • Nigeria’s external reserve position has now hit its lowest level in almost two months.
  • It is worth noting that Nigeria has lost a sum of $1.08 billion in external reserve in February alone.
  • This downturn has continued to persist despite bullish trends in the global crude oil market.

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Currencies

Naira gains at NAFEX window as external reserve plunges $1.1 billion in less than a month

Naira appreciated against the US Dollar at the Investors and Exporters window on Tuesday.

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Naira stabilizes at black market as CBN continues its intervention in forex market

Tuesday 23rd February 2021: The exchange rate between the Naira and the US Dollar closed at N408.6/$1 at the Investors and Exporters window.

Naira gained N1.4 against the US Dollar to close at N408.6 to a dollar at the NAFEX window, which represents a 0.34% gain compared to N410/$1 recorded on Monday.

Meanwhile, the exchange rate remained stable in the parallel market, as it closed at N480/$1 on Tuesday, the same as recorded on the previous trading day.

READ: Naira will “suffer further devaluation” – MTEF

Trading at the official NAFEX window

Naira appreciated against the US Dollar at the Investors and Exporters window on Tuesday, as it closed at N408.6/$1. This represents a 0.34% gain when compared to N410/$1 recorded a day earlier.

  • The opening indicative rate closed at N409.5 to a dollar on Tuesday. This represents a N1.46 drop when compared to N409.5 to a dollar that was recorded the previous trading day on Monday, February 22, 2021.
  • Also, an exchange rate of N429.75 to a dollar was the highest rate during intra-day trading before it closed at N408.6/$1. It also sold for as low as N388.75/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window increased by 134.6% on Tuesday, February 23, 2021.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover increased from $52.58 million recorded on Monday, February 22, 2021, to $423.37 million on Tuesday, February 23, 2021.
  • A cursory look at the data shows that Tuesday’s figure of $123.37 million is the highest turnover recorded since 14th January 2021, over a month ago.

READ: Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

Cryptocurrency watch

The crypto market lost significantly today, Tuesday 23rd February 2021, as selling pressure pushed the value of crypto assets lower amid sudden panic among retail and institutional traders.

  • Specifically, bitcoin lost about 13.14% to stand at $47,055 on Tuesday as at 8:11 pm, indicating a decline of over $7,000 in a single day.
  • This extends a sharp withdrawal from a record high, that it hit on Sunday, although Bitcoin remains up about 75% year to date.
  • Also, Ethereum dipped by 15.72%, while XRP recorded a 16.93% decline on Tuesday.
  • Meanwhile, the Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele appeared before the Senate on Tuesday to defend the ban placed on cryptocurrency transactions in the country.
  • He briefed the national assembly on the opportunities and threats associated with cryptocurrency and how it affects the nation’s economy and security.

READ: Nigerian stocks record gains, investors gain N132.8 billion

Oil prices rise amid OPEC+ meeting in March

Brent crude oil price rose by 0.61% on Tuesday to close at $65.64 compared to $64.63 recorded on Monday 22nd February 2021.

  • The price increase came after Goldman Sach forecasted that oil prices would climb around $70 per barrel in the second quarter of the year and $75 in Q3 2021. This is $10 above its previous forecasts.
  • The bank also stated that consumption will return to pre-virus levels by late July, while output from major producers will remain “highly inelastic” to the rising prices.
  • Meanwhile, Saudi Arabia and Russia are heading to the OPEC+ meeting next week with varying opinions on whether to add more supply to the market in April, which could shape the performance of the oil market.
  • However, Brent closed at $65.47 (+0.35%), WTI closed at $61.74 (+0.06%), Bonny Light at $62.83 (+1.19%), OPEC Basket ($62), and Natural Gas closed at $2.882 (-2.4%).

Nigeria lost over $1.1 billion in external reserves position

Nigeria’s external reserve dipped by 0.41% on Monday 22nd of February 2021, to stand at $35.28 billion.

  • This represents a decline of $145.9 million in foreign reserve, the highest single-day loss since April 2020.
  • Nigeria’s external reserve position has now hit its lowest level in almost two months, losing over $1.1 billion in less than a month.
  • This downturn has continued to persist despite bullish trends in the global crude oil market. However, Nigeria will need to boost its external reserve to hit $40 billion, as this will help meet some of the pent-up demand that has piled up as a result of the crash in global oil prices in 2020.

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