Barley a week after it insisted that it was not about to devalue the naira, the Central Bank of Nigeria (CBN) yesterday effectively depreciated the local currency from N360/$1 to N380/per dollar on the Bureau De Change (BDC) segment of the foreign exchange market.
The apex bank also devalued the naira on the Investors and Exporters (I&E) window from the N366.70 to a dollar it closed on Thursday, to N380.20/$1 yesterday, information obtained from Bloomberg terminal shows.
The CBN operates a multiple exchange rate regime which it has used to manage pressure on the naira. In a circular issued to Deposit Money Banks, BDCs and International Money Transfer Service Operators (IMTSOs) yesterday, the CBN directed that the applicable exchange rate for the disbursement of proceeds of IMTOs between March 23 and March 27, 2020, should be as follows: IMTSOs to banks-N376/$1; Banks to CBN-N377/$1; CBN to BDCs-N378/$1 and BDCs to end-users-not more than N380/$1.
Similarly, the naira has also been weakened on the I&E window as traders were advised on the Bloomberg terminal yesterday that the CBN had moved the rate of FX sales to Foreign Portfolio Investors (FPIs) from N366.70 to N380.20/$. Analysts said that the move is aimed at sustaining the interest of Foreign Portfolio Investors’ (FPI)’ in the country’s financial instruments. According to trading data from Bloomberg terminal, FPIs had not taken up Open Market Operations (OMO) instruments offered by the CBN on Thursday, indicating that the turmoil in global financial markets, occasioned by the coronavirus (COVID- 19 ) is beginning to affect inflows into Nigeria. The I&E window, also known as the Nigerian Autonomous Foreign Exchange Fixing Mechanism (NAFEX), was introduced by the CBN in April 2017, as part of measures to improve dollar liquidity at a time when the country was grappling with acute foreign exchange scarcity. FPIs quickly embraced the window and the naira soon stabilised at N360 per dollar at that segment of the naira.
While the CBN retained the naira’s official rate at N306/$ foreign investors and businesses regarded the I&E window exchange rate (N360/$1) as Nigeria’s ‘real’ exchange rate. Analysts, however, said that the CBN’s actions yesterday means that the naira’s effective exchange rate is N380 per dollar.
The development comes after the impact of an oil price plunge spread across asset classes in Nigeria, causing investors to widen spreads on the bond market, sell stocks and take positions on the naira. In order to calm the market after panic on the parallel market made the naira exchange at N410 to the dollar last week, the regulator had issued a statement, stressing that market fundamentals do not support devaluation of the naira at this time.
Nigeria’s dwindling external reserves coupled with the slump in oil prices had made analysts to predict that it was only a matter of time before the CBN would devalue the naira. For instance, in a report last week, JP Morgan r said it expected Nigeria to devalue its currency by around 10% to N400 per dollar by the end of June.