The naira on Friday depreciated past N400 to dollar at the forward market after Nigeria recorded its first case of coronavirus.
The naira was priced much weaker at N413.55 to the dollar in a year, compared with the N399.73 it traded at two weeks ago, Reuters report said.
A forward market is an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery. Forward markets are used for trading a range of instruments, especially at the foreign exchange market.
Analysts had tipped the naira to depreciate by 10 to 20 per cent in the parallel market by 2021 as the impact of falling crude oil prices and foreign exchange reserves persist.
Local and foreign analysts predicted that a decline by 10 per cent would take the naira to about N400 to dollar, while a 20 per cent drop would see it at around N450 to dollar.
According to Bloomberg survey of investors, the local currency may be marked down by up to 20 per cent in 2021.
According to the survey, the drop in foreign reserves and lower oil prices will probably force the Central Bank of Nigeria (CBN) to devalue the naira, seen as one of the world’s most stable currencies by next year.
The continued stability of the naira against the dollar has continued to spark speculations, with many analysts predicting that the local currency will sooner or later be devalued.
The Bloomberg survey of investors and analysts, showed that 10 out of 19 respondents expect the naira to be weakened in 2021, while five predict a mark-down as early as the second half of this year.
The remainder believe the CBN will keep a firm grip on the currency until 2022 or 2023.
The CBN has instituted several policies to defend the naira, including restricting importers’ access to dollars and stepping up the sale of high-yielding debt to attract inflows from portfolio investors.
The CBN has also backed the government’s closure of some land borders, designed to stop smuggling.
Most respondents say Nigeria cannot keep defending and sustaining naira’s stability beyond next year.
All but four of the survey participants said the naira is more than 10 per cent overvalued against the dollar. Two respondents said it was at least 20 per cent too strong.
The currency has traded around 360 to 365 per dollar since its last devaluation in 2017. While the CBN says the exchange rate is determined by the market, it is much less volatile than other oil currencies, such as the Russian ruble and Kazakh tenge.
The respondents were evenly split on the size of the devaluation, with nine predicting the naira will drop 10 per cent or less and the same number saying it would be marked down by 10 per cent to 20 per cent. Only one forecasted a fall of more than 20 per cent.
Most survey participants, who included money managers, analysts and economists based in Nigeria and abroad, asked for their answers to remain anonymous.
Since June, Nigeria’s reserves have decreased by 17 per cent to $37.4 billion, the lowest in more than two years. The slide has accelerated since the coronavirus outbreak in China rocked global markets and sent Brent crude prices down to around $55 a barrel. Last week, reserves in Africa’s biggest oil producer fell by $350 million, the most on a weekly basis since October.
All but three of the respondents said reserves would have to hit $30 billion before the CBN considers letting the currency fall, which is in line with what Governor Godwin Emefiele told investors last year.
Emefiele had vowed to keep the naira steady, saying in late November that the slide in reserves was not a cause for concern.
“In 2016 we had reserves as low as $23 billion and we survived,” central bank spokesman, Isaac Okorafor, said after the release of the survey. “We have proved them wrong before and we will do it again,” he told Bloomberg.
The CBN and FMDQ OTC Securities Exchange, a Lagos-based platform that oversees naira transactions, introduced new naira futures contracts of up to five years. The aim is to attract more foreign investment by helping investors hedge their currency exposure, Tumi Sekoni, FMDQ managing director, said.
Naira Crashes, Now Exchanging At N412 For A Dollar
The Nigerian Naira plunged further in value on Monday March 30, as it exchanged at N412 for a dollar following a temporary suspension of sale of forex to the Bureau De Change operators in the country by the Central Bank of Nigeria.
Recall that the apex bank had pegged the exchange rate of the Naira at N380 to the dollar, a move it insisted was not a devaluation of the Nigerian currency.
The CBN however granted the Association of Bureaux De Change Operators of Nigeria its request of going on holiday due to challenges in the local and global economies over the coronavirus pandemic.
While the Naira has crashed in its value due to the low price of crude oil in the international market in recent times, BDC operators have disclosed that there has been a drastic decline in demand for forex due to the impact of coronavirus on the economy. The financial market stakeholders also disclosed that businesses are down and many people are not travelling.
Naira Crashes In Value, Dollar Sells For N420
On Thursday, the naira exchanged between N405 and N420 to a dollar in the Bureau De Change segment of the market, Punch reports
The President, Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, said the crude oil price which fell drastically in the international market to as low as $35 per barrel, raised speculations among the BDC operators and Nigerians in general.
He said this caused speculations in the market which were not necessary.
Gwadabe said, “With the fall in oil crude oil prices on Monday, we witnessed a lot of foreign investors portfolio dropping their assets, most especially to convert to cash.
“The movement was as a result of recklessness on the side of the operators, when they want to speculate, but there is no reason for such because the Central Bank of Nigeria had continued to maintain support for liquidity to the BDC sub-sector.”
While noting that the dollar sold for as high as N400, he said sanity was gradually returning to the sector as it sold for N375 by the close of the day.
According to him, the CBN had maintained stability at N360 in more than three years.
He said in its meeting with the CBN on Thursday, the regulator warned the BDCs against contraventions.
The ABCON president disclosed that the CBN wanted to revoke the licences of some BDCs for various infractions but fined over 100 BDCs over N5m for various offences.
Another BDC operator who spoke with our correspondent said, “When we woke up on Monday, the exchange was still about N360, but all of a sudden, because of the fall in crude oil price, people were panicky.
“Today, we still sold for up to N420 but the price was fluctuating.”
The CBN also expressed its displeasure on the issue in a statement, saying the speculative activities of unscrupulous players in the foreign exchange market was borne out of the impression that the CBN was on the verge of devaluing the Naira, and triggering panic in the FX Market.
“These rumours are false, unwarranted and calculated to serve their dubious and selfish ends,” it stated.
It added, “We have begun a robust and coordinated investigation in collaboration with the Nigerian Financial Intelligence Unit and related agencies to uncover the unscrupulous persons and FX dealers who are creating this panic, and the full weight of our rules and regulations will be meted out to them, including, but not limited to, being charged for economic sabotage.”
N2.5trn Financing For One million Farmers On The Way
Commodities Exchange Limited has initiated moves to raise N2.5 trillion for 1 million farmers in the next five years.
Addressing journalists at the Memorandum of Understanding (MoU) signing ceremony in Abuja on Wednesday, Chief Executive Officer of AFEX, Ayodeji Balogun said “AFEX is on a path to building Africa’s second commodities derivative market,
The MoU was signed between AFEX, FMDQ and Dubai Gold and Commodity Exchange (DGCX).
Ayodeji Balogun noted that this partnership sets the tone for that journey.
He noted that AFEX develop product innovations that will unlock a wider range of products that are able to be traded within Nigeria’s capital markets to promote broad-based wealth creation that’s accessible to every Nigerian.
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