BEVERLY HILLS, January 05, (THEWILL) – The confusion that emerged on the first trading day of the year (Monday, January 4) over the adjusted rate of the Naira added another dimension Tuesday when the local currency witnessed further rate shift closing N393.83/$1.
The Naira which had traded N392/$1 on December 30, 2020, at the Investors’ and Exporters’ (NAFEX) window where forex is traded officially, depreciated to N410.25/$1 on the last trading day of the year – December 31, 2020.
Although no official statement was issued by the Central Bank of Nigeria (CBN) to that effect, the hosting of the rate depreciation (N410.25/$1) at the NAFEX (I&E) window on FMDQ platform laid credence to reports that the rate adjustment was official.
The narrative, however, changed when on January 4, 2021, the first trading day of the year, the exchange rate between the naira and dollar closed N394.3/$1, at NAFEX window resulting in the local currency appreciating by N15.95 or 3.8 per cent.
The appreciation trend from the sharp reversal continued Tuesday January 5, the second trading day of the year, when the Naira closed N393.83/$1 at the NAFEX (I&E) as against N394.3/$1 on Monday.
The Naira has remained stable at the parallel market – exchanging N470/$1 since December 29, 2020 after it depreciated from N465/$1 on December 28.
The CBN Spokesman, Osita Nwanisobi, could not be reached as calls made through his mobile number were not successful.
Reacting to the rate adjustment of December 31, 2020, President, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, described it as normal trading outcome during liquidity squeeze.
“That was just a trading outcome as there was no official communication from the apex bank confirming any rate adjustments.
“It is expected to see volatility in rates when there is liquidity squeeze in the market.
“The volatility we are witnessing is to establish an equilibrium in the market,” Gwadabe said in an e-mail to THEWILL.
He further described the scenario as a double-edge sword with implications for exchange rate volatility and investors’ confidence in the economy.
“The implication is a double-edge sword scenario.
“One, if the fragile liquidity persists in the coming year the official rate will realign with the open market.
“On the other hand, if liquidity supply improves, the CBN will proactively ensure the defence and confidence of the Naira to a normal order”, he further stated.
The CBN has disclosed that it injected $4.37 billion into the foreign exchange market in the third quarter of 2020 as part of efforts to ensure the stability of the Naira.
The apex bank in its 2020 Q3 Economic Report said that through its periodic interventions in the forex market, it continued to boost the supply side of the market, as COVID-19 crisis weakened the private sector supply chain segment of the market.
Part of the report read, “During the third quarter of 2020, total foreign exchange sales to authorised dealers by the bank amounted to $4.37 billion, a decline of 2.3 per cent from the level in the preceding quarter.
“This was attributed largely to the decrease in wholesale forward intervention and interbank sales.
“The total foreign exchange sales represented a decrease of 56.4 per cent, compared with the corresponding quarter of 2019.”
The report added, “Further disaggregation showed that matured swap transactions and SMIS intervention rose by 50.8 per cent and 0.7 per cent to $1.24 billion and $1.96 billion, from the levels in the preceding quarter.
“However, interbank sales, interventions at the I&E window and SME fell by 22.3 per cent, 18.7 per cent and 3.5 per cent to $0.15 billion, $0.39 billion and $0.30 billion relative to their levels in the preceding quarter.”
Alhaji Gwadabe in an interview with the News Agency of Nigeria (NAN) on Tuesday urged the CBN to continue stabilizing the foreign exchange rates for economic growth.
He said that the association’s expectation for 2021 was for CBN to maximize choices to improve the value of the Naira.
“My advice is that the CBN should continue to expand the supply source of the buffers through deliberate and strategic plans in the Diaspora remittances.
“Emphasis should also be given to diversification to enjoy the full potential of the present African Continental Free Trade Area (AfCFTA) agreement.
“It should also partner relevant stakeholders on the adoption of newer technologies and digitization of our Bureau de Change sector for growth of the economy.
“Finally, it should enhance intelligence base approach for effective monitoring and supervision of the market,’’ Gwadabe said.
According to him, the present strategies and tactics of diversification of sources of foreign exchange should be enhanced.
He called on the Federal Government to move from one source of oil proceeds to multiple sources, such as non-oil export proceeds, the Diaspora remittances and sales of unprofitable assets.
According to FMDQ Securities Exchange, local sources (principally the CBN and non-bank corporates) are providing more than 90 per cent of foreign exchange inflows at the I&E window.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
