New Telegraph - The naira strengthened against the dollar yesterday, recovering after suffering a sharp drop the previous day when the Central Bank of Nigeria (CBN) commenced its new market driven foreign exchange policy.
The naira’s appreciation comes against the backdrop of fresh support for the new policy from respected international organisations such as rating agency, Moody’s.
Traders said that the local currency gained against the dollar, rising to N282 from a low of N286 on Monday after the CBN intervened for a second day to sell dollars into the interbank market after floating the naira failed to attract trading between banks due to liquidity concerns.
The apex bank was said to have sold a total of $31 million at between N282 and N285. The interbank market quoted total traded volumes of $73 million yesterday. The naira also appreciated further against the dollar at the parallel market yesterday.
It gained N9 at the close of trading yesterday to exchange at N335, from N344 it traded on Monday. The naira also appreciated against the pound sterling and the Euro as it traded at N450 and N356 respectively. Traders at the market said that the consolidated appreciation of the naira at the market reflected the impact of the flexible exchange rate.
They added that the new foreign exchange policy had the potential of frustrating the activities of currency hoarders and speculators. Expressing support for the new forex policy, Moody’s said that although the CBN “is likely to continue to intervene,” the new system would “gradually eliminate any gap between unofficial exchange rates” and help boost the country’s income.
Analysts also attributed the naira’s strengthening to the CBN’s spending of more than $4 billion on Monday to clear pent-up demand for foreign currency.
The foreign-exchange trading platform, FMDQ OTC Securities Exchange, said in a statement on its website that the regulator sold $532 million on the spot market and $3.49 billion on the forward market on the first day of trading under the new system.
Bloomberg quoted head of Africa strategy at Standard Chartered Plc. in London, Samir Gadio, as saying, “Given the quantum that was cleared at this point, this will probably be viewed as a positive result. That said, the pressure on foreign-exchange reserves is only likely to be deferred in the forward market.
The Central Bank of Nigeria will also remain the main provider of dollar liquidity in the spot market for the time being.”
Similarly, analyst at Capital Economics, John Ashbourne, said investors would be “encouraged” by the performance of the new system, adding that it may lead to greater inflows of capital that the country desperately needs. Investment into Nigeria has shrunk, as foreigners were deterred by capital controls that were put in place by the CBN under the old forex system.
It will be recalled that another rating agency, Fitch, had said the new foreign exchange policy provided access to dollars for Nigeria’s banks, which would allow them to meet their internal and external obligations.
Meanwhile, the implementation of the new forex policy yesterday made Nigeria’s dollar-denominated bonds to rise as much as half a cent. The 2021 issue gained 0.51 cents to trade at 99.760 cents in the dollar – its highest level since early November, according to Tradeweb data. The 2023 issue rose 0.40 cents to 96.150 cents, its highest level in more than 10 months.
Also, interbank overnight rate soared to 60 per cent yesterday from 18 per cent, as banks expected the CBN to debit them around N1.2 trillion to cover hardcurrency purchases, traders said. Meanwhile, Bureau de Change (BDC) operators in Abuja have lamented poor patronage since the commencement of the new Foreign Exchange (FX) policy.
The News Agency of Nigeria (NAN) reports that BDCs in Abuja were bereft of customers. The dealers were seen hanging around as they wait for customers. Alhaji Abubakar Kura said that naira was now trading for N315 to a dollar at parallel market as against an average of N365 it was trading last week.
“Even with the drop in dollar price, we are surprised that customers are not coming. We are very worried about our business and hope this new policy does not mean the end of our livelihood,” he said.
Alhaji Mahmoud Madawa, another operator, said the BDCs were willing to buy from the banks if they would sell in a way that would allow the BDCs to also make profit. Chairman, Association of BDC operators in Abuja, Mr. Yusuf Ibrahim, was optimistic that the market would soon improve.
However, the President, Association of Bureaux de Change in Nigeria, Mr. Aminu Gwadabe, advised CBN to resolve issues concerning appointment of primary forex dealers, who he said were key players in the new regime.