Business
CBN faces more forex challenge, as naira gains 20% and loses 40%
BY EMEKA EJERE
Despite massive appreciation of the naira against the dollar on Friday at the official market, events of last week are raising concerns that recent moves by the Central Bank of Nigeria (CBN) to strengthen the foreign exchange market may not have yielded the desired result.
The domestic currency appreciated 27.77%, closing at a new monthly high of N780.14 to a dollar at the close of business on Friday, data from the FMDQ OTC Securities Exchange, where forex is officially traded, showed.
However, since firming up against the dollar last week, after news that the apex bank was clearing some of its backlog broke, the naira has been on a steady decline in both the official and parallel markets.
So far, the local currency has lost about 40 per cent of its value in 2023, earning the tag of one of the worst performing African currencies from the World Bank.
The naira had closed trading on the Investor & Exporter forex window on Thursday at N996.75/$. This is a 13.95 percent decline from the N874.71/$ it closed trading on Wednesday. As at Thursday, the naira had lost 27.75 percent of its value since opening the week at N780.23/$ according to details on FMDQ OTC Securities Exchange.
In the parallel market, the currency has lost value too, falling from N950/$, as of Friday penultimate week to close to N1,140/$ as of Thursday last week, according to Bureaux De Change operators, who spoke to Business Hallmark. This represents a 20 percent decline.
A trader, who only gave his name as Kadri said, “Dollar is N1,100 if you want to sell. It is N1,140 if you want to buy.” Another trader, Awulu, stated that he would buy the dollar at N1,100 from our correspondent. He said, “Dollar is N1,100 if you want to sell to me.”
Earlier in the week, the President of the Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, told The PUNCH that the dollar was gaining against the naira because people, who had bought it at a higher price were resisting its fall.
He said, “Speculators are always looking at elements of sustainability. Once they sense that it (the injection) is not continuous, they begin to react. It is the reaction of the market we are witnessing. Also, there is resistance. There are people that bought at a higher price that this does not favour. People are not willing to take further losses.”
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Concerned with the fall of the currency, the presidency recently stated that it is planning policies to strengthen the local currency.
A Special Adviser to the President on Economic Matters, Dr. Tope Fasua, who was representing the Vice President, Kashim Shettima, at an event, said: “For those, who are speculating and praying and wishing that the currency would become nonsense, I believe that the central bank is rolling out the policies and the government that I serve, led by the President, will shock some of them.”
However, the naira’s gain on Friday has come as a respite to many analysts, who had expected the CBN’s recent move to clear some of its FX backlog to boost confidence in the currency.
But the domestic currency weakened at the parallel forex market, where forex is sold unofficially. The exchange rate depreciated by 3.54%, quoted at N1130/$1, while peer-to-peer traders quoted around N1100/$1.
War against speculators, hoarders
Business Hallmark learnt that the CBN has vowed to go after currency hoarders and speculators, whose activities are allegedly contributing to the depreciation of the naira against major foreign currencies.
A source in the apex bank was quoted to have said the speculators and hoarders are sabotaging government’s efforts aimed at stabilising the naira against the dollar.
Government’s efforts to stop the depreciation of the naira received a significant boost in the last two weeks, when the naira appreciated significantly, with some Nigerians expressing happiness and commending the CBN for strengthening the naira. But the reverse was the case for speculators and hoarders who lost a lot of money.
Surprisingly, from Thursday, the naira began to depreciate again. As a result, the government and the CBN felt the gap between the official and parallel market is artificially induced by speculation and hoarding.
The source, who craved anonymity because he has no authority to speak, said that politically exposed persons benefiting from the FX round tripping under the last administration are currently fighting the system.
“The FG did an excellent job with the naira given its recent appreciation. Speculators and hoarders, who are powerful Nigerians, are pushing back and sabotaging government’s efforts. The government will go after them and deal with them decisively. Based on the intelligence at my disposal, the CBN has concluded that the depreciation is due to a pushback by speculators and traders,” the source stated.
“Now, the CBN is focused on launching a campaign against speculators and hoarders else, the gains against the naira will be eroded if nothing drastic is done.”
Too huge to clear
A report by the Economist Intelligence Unit on Friday questioned the financial capacity of the CBN to clear $6 billion forex backlogs owed to banks, noting that CBN “lacks the firepower” to perform such activity. It also claimed the CBN lacks the experience to conduct a foreign currency float leading to a negative outlook for the naira.
Recall that last week, the naira appreciated heavily following reports that the apex bank had begun clearing debts owed to banks. The apex bank’s Director of Corporate Communications, Isa AbdulMumin, reportedly confirmed the development, noting, “CBN has started off setting the fx forwards backlog.”
But the EIU in its new country report for Nigeria noted that there would be continued currency losses due to the large size of the parallel market and the low foreign exchange reserve of the country, stressing that the authorities haven’t shown enough willingness to implement an orthodox monetary policy to address the issues weighing on the naira, such as severely negative short-term real interest rates.
Meanwhile, there was an unconfirmed report on Friday that the Federal Government has asked the CBN for a loan of around N1.7 trillion to help it fund the 2023 supplementary budget.
President Bola Tinubu signed the N2.17 trillion supplementary budget into law on November 8, 2023. The report claimed that the Ways and Means advance request has thrown the new CBN governor, Olayemi Cardoso, into a dilemma due to the controversies surrounding the previous loans granted to the Federal Government by the apex bank during the presidency of Muhammadu Buhari, which stood at about N22.7 trillion on May 29, 2023, when the administration ended.
