LAGOS — There appears to be increasing tension and instability in the Nigeria’s foreign exchange market with depreciation of Naira accelerating as the Central Bank of Nigeria, CBN, and the banks push for more restrictions on the market.
The parallel market has been on daily depreciation of the Naira in the past two weeks worsening this week with market operators indicating the crash has not bottomed out.Yesterday, the local currency crashed further to N280/$1 at the parallel market, pushing the market premium to all time high of over 41 per cent against the official exchange rate range of N196-N198/ $1.0.
At the backdrop of the development, commercial banks sent out letters to their customers informing them that henceforth maximum spending limit on offshore credit/debit card spendings have been further reduced to $12,000.00 per annum.
According to the banks, the letters were sequel to a similar communication from the apex bank directing a downward review of domiciliary account spendings abroad.
The latest downward adjustment will be the second this year, having crashed the limit to $50,000 from $100,000 mid this year.
As the foreign exchange market tension persists, market operators said the apex bank will cancel the weekly sale of foreign exchange to Bureau de Change dealers anytime from now.
An official of the apex bank said the bank would formally give a “forward guidance” on the new policy that is expected to frustrate the booming black market trading of foreign currencies nationwide.
CBN has been battling unwholesome practices and lack of rendition of weekly reports by BDCs.
Vanguard learnt that some authorized BDCs usually buy foreign exchange from the CBN at the official rate of about N197-$1 and resell at the parallel market (black market) to end users at rates ranging far above the stipulated margins.
There are about 2578 authorised BDCs that participate at the CBN’s weekly sale auction but less than half have been regular at the CBN’s official foreign exchange window as the apex bank regularly ban most of them for infringements on the rules.
CBN had in a circular this week outlawed the hawking of foreign exchange on the streets, a multi-decade practice in Nigeria’s main cities. The law is effective from January 1, 2016.
The circular stated: “It shall be a ground for the revocation of licences should any street trader in foreign currencies be found to have any business relationship with a licenced BDC.”
CBN blames high rate on speculators
At the backdrop of the foreign exchange crisis, CBN’s Director, Monetary Policy Department of the Central Bank of Nigeria, Mr. Moses Tule, said the Naira is under pressure because of the actions of speculators, who he faulted for taking positions against the Naira, with a view to making excess gain from currency trading.
Tule, who stated this in a television programme monitored in Abuja yesterday, said the currency speculators were determined to put severe pressure on the monetary authorities expecting the apex bank to buckle and further devalue the naira.
According to him, the CBN had a responsibility for the economy and would not fold its arms while economic predators feast on the nation’s commonwealth through arbitrage.
While maintaining that the only rate in the currency market was N196.47/$1, he wondered why indigenous operators in the Bureau de Change (BDC) segment of the market chose to make huge profit at the expense of customers in genuine need of the currency.
He lamented that while international operators such as Travelex traded at not more than N7 above the rate, indigenous operators preferred to make profits as high as N50.
“We know what the fundamentals of this (Nigerian) economy are and we (CBN) will continue to take the right economic decisions on what to do and not when people sitting out there speculating on the currency think the naira should be devalued, so that they could make profit out of it.
“No country quotes its exchange rate with reference to the BDCs rates. The currency has a reference rate and that is the interbank exchange rate,” he declared.
Mr. Tule, therefore, urged Nigerians to be more patriotic in their dealings rather than engage in activities capable of undermining the integrity and value of the naira, adding that the media had a role to play in assisting the CBN to curb speculation on the naira.
Also speaking on the programme, a former Deputy Governor of the CBN, Mr. Tunde Lemo, urged Nigerians to change their lifestyles to support the drive towards conserving the nation’s foreign reserve, stressing that no developing economy leaves the exchange rate determination free to market forces.
CBN should allow Naira devalue to true level
—Sterling Bank CEO
Meanwhile, the Managing Director/Chief Executive Officer, Sterling Bank Plc, Mr. Yemi Adeola has called on the CBN to allow the naira to devalue to its true level.
He made this call while addressing a press conference on the 10th anniversary of the bank, saying that the capital controls introduced by the CBN in recent times to defend the naira cannot be sustained for too long.
Adeola noted that neither the official exchange rate of N197 per dollar nor the parallel market exchange rate of N280 per dollar reflects the true value of the nation’s currency.
He said: “The true value of the Naira is in between the parallel market and CBN exchange rates, and we should devalue the naira to that true value.
“The issue of foreign exchange is a tough one because you can only spend what you have. If our reserves are at $29.4 billion as at December 15, it would barely fund four to five months of import.”
There is no regulator that would not be worried at that level.
“The options to adopt are usually two: The first is to adopt capital controls as a strategy and focus on key sectors. In other words you determine where you want the foreign exchange to go to. You want to curb waste or wastages. You don’t want a situation where the people use the foreign exchange for speculative purposes. You want to control it. And that is what is happening now.
“But it is a double edged sword. When you adopt capital controls, investors are reluctant to come in because if they bring the money in at N200/$, they are not sure that if by the time they are going out, they would be able to get money to buy and at what rate. So you shut your doors to new money come in, which is not a desirable option.
“First it is a supply issue, and second, it is a function of the productive capacity of the country. The other thing you can do is to allow the naira find its true value. And this leads to another tough question, which is, what is the true value of the naira? The easiest answer people give, is to use the value on the street. But that is not necessarily the true value. And some will say it is the CBN rate, but is not also the true value. The true value must be in between the parallel market rate and the CBN rate. But there are ways we can find the true value of the naira, and devalue to that extent. If people are sure that they would get true value for their dollars, then the dollars will come in. I do not think we can sustain capital control for too long.
Sterling Bank targets 1m new customers.
Speaking on the bank’s plan for 2016, Adeola said that Sterling Bank will increase its customer base by one million new customers in 2016 as well as complete ongoing efforts to raise Tier 2 capital raising exercise.
He said, “At this point we are adequately capitalised but we are pursuing Tier 2 capital. We are at the tail end of it and hopefully by January or February, we would have additional debt capital. In terms of equity capital, I think we are good. At Capital Adequacy ratio of 19 percent, when what is required is 10 percent, we are not under capital pressure at all.
“As we get ready to go into 2016, we are focussing on four key areas strategically. The first is to improve our funding and customer counts We intend to increase our customer base by one million new customers in 2016.”
END
This is out of the control of the current FG and CBN governor, If the price of oil continues to stay firmly below US$45 for over a month (it has been trading at $35 for over a week) the CBN has no choice but to readjust its range above N260. In my own estimate anytime from now to the second week of January there will be an adjustment in the CBN peg.
Now if the previous govt had saved like all oil economies do during the boom years, the situation would not have been this bad. It is even more diabolical because the person heading the economy NOI was a former World Bank MD that would junket around the world preaching to resource rich countries to save money in times of boom and well known cycles.