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Speculators suffer heavy losses as naira approaches N1000/$

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Anxiety lingers over fate of naira as speculators exploit CBN low funding

Respite has continued to elude those, who live on the volatile nature of the foreign exchange market, which had seen the naira battered since June 2023, following improved dollar liquidity that has strengthened the naira and also as a result of decline in the demand for the greenback.

This has left currency speculators, who had projected that the local currency would hit N2,000 to the dollar counting their losses and bringing out their hoarded dollars to prevent further losses.

The naira, which was N1,120 to the dollar as of December 31, 2023, went down to N1,400 in January and further depreciated at the black market to N1,850 in February.

Some of the speculators, envisaging that the value of the naira would further depreciate, had taken position at N1,900 and some had even bought the dollar at N1,700.

However, as the Central Bank of Nigeria (CBN) began fulfilling its promise of clearing the legacy backlog and supplying liquidity at the Nigeria Autonomous Foreign Exchange Market (NAFEM) as well as to the Bureau de Change operators among other strategic steps, the naira began to appreciate.

The local currency experienced a notable appreciation, reaching N1,245 per dollar in the parallel market on Friday, surpassing the official and Bureau De Change (BDC) segments’ rates.

The development came amid ongoing discussions between the Association of the Bureau De Change Operators of Nigeria (ABCON) and the CBN regarding foreign exchange rate adjustments.

At the official FX market, the dollar was valued at N1,255.07 on Thursday, with the BDC segment quoting it at approximately N1,269/$1.

Contrary to online media reports suggesting a CBN rate adjustment for BDCs to N1,190 per dollar, ABCON’s national president, Aminu Gwadabe, clarified that no new changes have been implemented by the CBN.

The naira’s strength at the parallel market signifies a 1.20 percent increase compared to Thursday’s exchange rate of N1,260 per dollar. The performance marks a significant recovery, with the naira appreciating by 46.58 percent since February 20, 2024, against the dollar.

The local currency has also shown substantial gains in the official FX market, achieving its strongest position in three months at N1,255.07/$1.

Historical data from the FMDQ Securities Exchange indicates that the last time the naira fared better was on January 26, 2024, when it closed at N891.90 per dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

Compared to its lowest rate of N1,627.40 per dollar on March 8, 2024, at NAFEM, the naira has improved by 29.67 percent, highlighting a trend of gradual strengthening against the U.S dollar in both the official and parallel markets.

Abdulahi Danjuma, a street trader on the Lagos Island, told Business Hallmark on Friday that the appreciating value of the naira was due to the recent moves by the CBN to ensure improved FX stability.

“Anybody that has dollars in the house now is at risk because we don’t know how far the CBN is willing to go. For me, I am not buying dollars today because anything can happen tomorrow’’, Danjuma said.

”The price is changing, not even by N20 but by N100 or more every day, and to keep dollars in the hand now means that one will lose money.”

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According to him, there is a possibility that the naira would go as high as N900/$1 and those that had been speculating and hoarding dollars would be at a loss, particularly, those that had bought when it was at N1,600 early last month.

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Former banker and Lead partner at Okwudili Ijezie & Co, Chattered Accountants, Chief Okwudili Ijezie, on Friday shared an encounter with a currency speculator seeking alternative investment advice thus:

“I got a phone call this morning from someone, who wanted me to advise him on an investment vehicle he should enter, as he lost millions of naira yesterday, when he sold dollars he had earlier mopped up at over N1,600/$1. He thought holding (or hoarding) dollars is an investment vehicle.

“I empathized with him and advised him to use the money to buy Treasury Bills, or if it’s huge, to use it to buy lands and landed property. I cautioned him against buying shares of International banks now, as it’s very risky.

“Some of them may fall by the gutter with this recapitalization agenda of the Governor of the Central Bank of Nigeria. I reminded him that apart from Access Bank, none of the Big Banks, in fact, the other banks, has had the temerity to publish their 2023 Audited Financial Statements. Wahala dey ooooooo.”

On June 14, 2023, the CBN enacted several reforms, including the abolishment of market segmentation, consolidation of all segments into the Investors & Exporters window (now called the Nigerian Autonomous Foreign Exchange), and the reintroduction of the willing buyer, willing seller framework.

In August 2023, the apex bank resumed forex sales to Bureau de Change (BDCs) but implemented a restriction on the buying and selling spread by BDCs to +/-2.5 percent of the weighted average of transactions executed the previous day on the I&E window.

In January 2024, the banking sector regulator imposed a limit on the Net Open Position (NOP) of banks in Nigeria, setting it at a maximum of 20 percent short or zero percent long holding of foreign currency assets and liabilities. Additionally, the CBN directed International Money Transfer Operators (IMTOs) to quote an exchange rate for naira payout to beneficiaries based on the prevailing market price.

In February 2024, the CBN removed any caps on the spread on interbank forex transactions and lifted restrictions on the sales of interbank proceeds. Furthermore, the apex bank restricted the payout of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) to electronic channels only.

According to FSDH Research, the implementation of these measures has contributed to the reduction of volatility in the naira in the FX markets.

By March 2024, the volatility of the naira had further decreased following additional reforms by the CBN aimed at enhancing transparency and inflows into the FX market. On March 28, the NAFEM closing rate stood at N1309.4, reflecting a significant appreciation from its peak of N1,650 on February 26, 2024.

Goldman Sachs predicted early in the first quarter that the exchange rate would settle around N1200 within 12 months. Barely a month into the prediction, the local currency has maintained positive traction at official and parallel markets due to improved foreign investors’ confidence.

The level of confidence exhibited continues to attract foreign currency inflows. Nigeria witnessed huge or sizeable foreign currency inflows over the last three months as the apex bank sold Treasury and OMO bills to foreign investors at higher rates.

As part of measures to control inflation and stabilise the naira, the CBN last month raised its benchmark interest rate by 200 basis points to 24.75 percent from 22.75 percent in February 2024.

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