JUST IN (Coronavirus): CBN finally devalues the Naira

As the Coronavirus, COVID-19, pandemic continues to take a toll on the Nigerian economy, the Central Bank of Nigeria, CBN, has technically devalued the naira to reflect market conditions as analysts and market operators said they are not surprised.

Information gathered from Investor/Exporter, I&E, window revealed that though the closing price as at 7 pm yesterday was N372.00 per dollar, the peak price for the I & E window stood at N382.00 per dollar.

The I&E window is a special foreign exchange space created by the CBN in the wake of the economic recession in 2016 to make room for the free flow of the forex resources and drive up economic activities across all sectors.

The opening indicative rate for dollar sale on Friday was N368.81 per dollar.

But street traders, otherwise known as parallel market, Vanguard learned, have started marking up the rate against the new development bringing rates up to N400/$1 in some locations in Lagos Island.

The previous week the parallel market rate had hit N410/$1 before retreating back to N378/$1 by mid last week following huge intervention by CBN.

Hints of the apex bank’s technical evaluation were confirmed by an official of the apex bank who spoke with Vanguard anonymously admitting there was an adjustment in the I&E window to reflect the developments in the economy since the COVID-19 pandemic.

He stated: ‘‘We allowed the Naira to mirror developments in the market-determined I&E window. All I’m saying is that there’s an adjustment in I & E window of the market to reflect developments foisted on the market by the COVID-19 crisis.’’

The apex bank followed this officially with a circular titled, “Weekly Exchange Rate for Disbursement of Proceeds of International Money Transfer Services Operators, IMTOs” and signed by its Director, Trade and Exchange Department, Dr. O.S Nnaji reads: “ Please be advised that the applicable exchange rate for the disbursement of proceeds of IMTOs for the period Monday, March 23 to Friday, March 27, 2020, is as follows: IMTOs to banks N376/1USD; Banks to CBN N377/1USD; CBN to BDCs N378/1USD; BDCs to end-users-Not more than N380/USD; Volume of sale for each market is USD20,000 per BDC.”

The CBN further in the circular stated that the GBP rate should be derived from the USD cross rate on the date of sale.

Meanwhile, reacting to this development, an analyst/ Head of Research & Investment at Fidelity Securities Limited, Mr. Victor Chiazor said: “The decision of the CBN to move the exchange rate from the current level between NGN376 to NGN380 per dollar does not come as a surprise, as most analysts believe a possible official devaluation is around the corner if the decline in oil prices is prolonged and our foreign reserves continue to drop. This move is expected to have direct implications in different sectors of the economy.

“ For importers of finished goods as well as manufacturers who still depend on some form of imported input items, we expect prices of their finished products to rise further exerting upward pressure on inflation and also reducing the purchasing power of consumers whose disposable income have remained under pressure.

This may slow down economic activities in the short term as manufacturers continue to complain about the high cost of production even as demand for goods remains relatively weak.

“In terms of Foreign Portfolio Investments, this will definitely encourage capital inflow as our goods and services become cheaper as compared to the previous levels before the adjustment.

This will also help reduce the risk of capital outflow which would have put pressure on our foreign reserves. Investments in the capital market will become attractive to Foreign Portfolio Investors, FPI’s as this adjustment will give them the ability to purchase more stocks for the same dollar equivalent as this adjustment automatically makes equities cheaper.”

The Vice-Chairman, High Cap Securities Limited, Mr. David Adonri said: “Unofficially, the naira has been devalued for some time. The Equities market reacted accordingly with downward correction.

Now that the devaluation has become official, I don’t envisage further material reaction by the equities market. More financial assets will migrate to fixed income as a result of the deteriorating economic situation. This will further reduce the average yield on bonds below 7 per cent.”

In his own comment, Chairman, Association of Securities Dealing Houses of Nigerian, ASHON, Chief Patrick Ezeagu said : The devaluation will have grave consequences both to the economy and the capital market as well.”

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