Naira: appears devalued again. Now N198 to $1 officially

Nigeria’s central bank scrapped its bi-weekly currency auctions on Wednesday and a market body said it would sell dollars only at 198 naira, a move that amounts to a de facto devaluation of Nigeria’s currency.

The Central Bank of Nigeria has been avoiding the ‘d’ word, because of its unpalatable political consequences, six weeks to another election, but by directly selling dollar at N198, far below its self-set band of N160-176, it has effectively devalued the currency, the second time the bank will do so in less than three months.

Outside of the banking system,the naira traded today at between N218 and N220 at BDCs and the dollar was even difficult to get, currency traders told TheNEWS.

FMDQ, a group comprising Nigeria’s main commercial banks and the central bank, said commercial banks had been banned from re-selling central bank dollars among themselves, another attempt to end speculation in the naira.

The currency has lost more than 20 percent in the past three months as oil prices collapsed and concern grew about political stability after the six-week postponement of the Feb. 14 presidential elections.

The scrapped dollar auctions made up only 10 percent of all FX trade, and abandoning them meant the central bank had effectively ditched its official 160-176/dollar target band, said Segun Agbaje, chief executive of GT Bank and an FMDQ director.

Emefiele, CBN governor: de facto devaluation of Naira again

Under new trading rules, banks will only be able to purchase foreign exchange if they have a prior order from a corporate customer, such as a fuel importer or foreign mobile phone company looking to repatriate profits or dividends.

Any outstanding dollar demand at the end of each trading day would be met by the central bank at 198, FMDQ vice chairman Jubril Aku told a news conference.

“Starting from Friday, the interbank market is order-based — essentially filling orders of customers,” he said.

In a statement, the Central Bank of Nigeria (CBN) did not stipulate the level at which it would sell dollars, but said it would continue to intervene “to meet genuine/legitimate demands”.

Its reserves have dropped 25 percent over the last year to $33 billion, a rate of depletion that most analysts said was unsustainable, having to auction $100million daily to shore up Naira.

“This not only allows the CBN to save FX reserves but also effectively gets rid of the distortion of two exchange rates,” said Razia Khan, the head of Africa research at Standard Bank in London.

“It looks like this is a devaluation of the currency and a new peg at the rate of 198.”

The CBN closure of the Retail Dutch Auction System (RDAS) and Wholesale Dutch Auction System (WDAS) Foreign Exchange window was announced by Alhaji Ibrahim Mu’azu, CBN Director of Corporate Communications Department, in Abuja.

“We wish to inform all authorised dealers and the general public that with effect from the date of this press release, the rDAS/wDAS foreign exchange window at the CBN is hereby closed.

“Henceforth, all demand for foreign exchange should be channeled to the Interbank Foreign Exchange Market,’’ it said.

It assured that the CBN would continue to intervene in the interbank foreign exchange market to meet genuine and legitimate demands.

It said the managed float exchange rate regime, which CBN had adopted following the liberalisation of the foreign exchange market, had been successful in ensuring exchange rate stability in line with its mandate.

“In recent times, with the sharp decline in global oil prices and the resultant fall in the country’s foreign exchange earnings, CBN has observed widening margin between the rates in interbank and the rDAS window.

“This has engendered undesirable practices, including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents,’’it said.

According to the statement, this has continued to put pressure on the nation’s foreign exchange reserves with no visible economic benefits to the productive sector of the economy and the general public.

“In view of the foregoing, it has become imperative that appropriate actions be taken to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves.’’

The CBN had twice sold a dollar for N198, directly to the banks, while at the same time dismissing speculations of another round of devaluation, after the November move, that devalued the currency by eight per cent.

Since then, the market had been seized by panic as the naira continues to trade below the 160-176 band set for it by the CBN.