Market News

By Bamidele Ogunwusi 

BAMIDELE OGUNWUSI 

The developments seen in the foreign exchange market in the country in the last two months have exposed the country’s currency, the Naira which has been sliding daily. 

As at press time on Tuesday, the dollar was exchanged for N952 in the parallel market while at the I&E window, it was hovering around N800 to a dollar. 

Many experts believe that the forces of demand and supply are at play in the market which has struggled to meet demand for PTA and BT 

Nigeria’s lingering foreign exchange (FX) scarcity is currently keeping Deposit Money Banks (DMBs) resources grossly overstretched as they struggle to meet the huge FX demand from their customers. 

The current development is taking a heavy toll on foreign tuition, businesses, and leaving several manufacturers frustrated as more pressure turned to the parallel market. 

Daily Independent learnt that many students (seeking admission in the United Kingdom, Scotland and European nations) reportedly are now rushing to purchase FX from dealers ahead of the resumption of school activities and clearing of their goods at foreign ports. 

The Central Bank of Nigeria (CBN) in its efforts to manage the forex market, had assured that PTAs and other invisible transactions would continue to be accessible through banks at the prevailing I&E window rate. 

However, a recent survey showed that several commercial banks in Lagos are struggling to meet the demand for forex, with some in many cases, simply not having anything to sell. 

Most banks informed their customers that they would only be able to access Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) once in two quarters. 

Before this new development, banks had been approving travelers who applied once every quarter. The situation according to analysts is exacerbated by the massive disparity in official and black market values, which has now widened to N200/$1 in a matter of months since the unification of the exchange rates markets was announced. 

The exchange rate disparity was a major trigger for the introduction of the revised foreign exchange market forcing authorities to ease foreign exchange controls in mid-June to simplify its monetary regime. 

However, this move appears to have led to heightened volatility in the black market, driven by strong demand from manufacturers, importers, students, and travelers. 

Investigations revealed that to meet their obligations, they regularly convert a significant portion of their income into dollars, further contributing to the limited supply available for all. As a result, the depreciation of the naira persists, and the outlook for forex volatility remains uncertain. 

At the last Monetary Policy Committee (MPC) meeting in July, the Acting Governor of the CBN, Folashodun Shonubi acknowledged that the ongoing forex volatility is primarily attributed to the limited supply of foreign currency. 

He expressed optimism that once the supply issues are addressed, the volatility is likely to reduce. 

He said: “Some of the volatility you have seen over the period has been driven by that same fact that the market needs to find its level and also the reality that there is a pent-up demand which current supply may not be sufficient for and as we ease and satisfy the pent up demand we will begin to see more efficient markets that run. 

“So we expect that over time, sooner rather than later. The volatility will normalize. The role of the central bank is to intervene and keep the market at a fairly stable level. We have our views as to what that level is and as the market continues to oscillate around that level, if there is a need for us to intervene either by buying or selling, that is the role of the Central bank”. 

Mallam Kurfi Garba, the Managing Director, APT Securities, said that the current development is spreading panic through the business community and urged the Tinubu-led administration to act fast to avoid losing control of the Naira. 

“The goal was to facilitate a realistic rate and remove the wide arbitrage gap created by the official and parallel market rate. Unfortunately, it has not been met. Furthermore, we are yet to have an official cabinet or strong economic management team coupled with the rising inflation, the fear is that this government might lose control and this could mean harm to the economy. 

“This means that the present government needs an economic team urgently. There has to be closer collaboration with the appropriate agencies because the shortage of the dollar is leaving the supply in the hands of the BDCs and with their current price, a short-term strategy is needed to boost the Naira”, Garba explained. 

New Move 

Meanwhile, the Central Bank of Nigeria (CBN), has said it is set to take new measures to stabilize the naira against the dollar. 

Shonubi, said the bank is actively working to improve liquidity and stability in the market, including addressing issues in the parallel market. 

He emphasised that the fluctuations in the parallel market are not solely driven by economic factors, but also speculative demand, just as he warned speculators that the CBN’s upcoming initiatives could potentially lead to significant losses for them. 

He expressed confidence that the measures being implemented would yield positive outcomes within a few days. 

According to him, the CBN’s ultimate goal is to create an efficient and reasonable operating environment that minimises negative impacts on the average Nigerian’s life. 

While speaking after a meeting with President Bola Ahmed Tinubu on Monday, Shonubi assured that the CBN remains committed to ensuring stability and improving the overall economic landscape. 

He said: “Mr. President is very concerned about some of the goings on in the foreign exchange market. One of the things we discussed is what could be done to stabilise and what could be done to improve the liquidity in the market and also the goings on in the various other markets, including the parallel market. 

“He’s concerned about its impact on the average person, since, unfortunately, a lot of activities that we do, which are purely local, are still referenced to exchange rates in the parallel market. 

“We’ve discussed and I’ve shared with him what we’re doing to improve supply. If you look at the official market, you’ll find that that market has been fairly stable and the spreads of the difference have not fluctuated as much. 

“We do not believe that the changes going on in the parallel market are driven by pure economic demand and supply, but are touched by speculative demand from people. 

“Some of the plans and strategies, which I’m not at liberty to share with you, means sooner rather than later, the speculators should be careful because we believe the things we’re doing, when they come to fruition, may result in significant losses to them. 

“But, my presence here is more about the concerns the President has and his needs to know that we are doing something about it, assurances of which I have given him. 

“So I hope this helps. We are looking at it and we’re doing things that will significantly impact the market in a few days and we will all see it. 

“The intention is to ensure the environment operates at a level that’s more efficient, but also that is also very reasonable and does not have a negative impact to the best that we can on the lives of the average person.” 

Significantly, many analysts believe that no matter the efforts being planned by the CBN to stem the tide of the Naira slide, they may not be able to respond adequately to cater to both the issue of stability and reality. 

Dr. Rasheed Alao, an economist, believes that the best the CBN could do at a time like this is to ensure “a veiled” stability. 

He said, “I don’t want to envy the CBN at a time like this. The best it could do is to ensure a veiled stability that will only last for some time but what may solve the problem is facing the reality that we are not attracting enough dollar supply”. 

To Stephen Iloba, the reality is the insatiable demand of Nigerians for dollars. 

“As a nation, we should be able to curtail our demand for forex. Without doing this, the pressure on the foreign exchange market will continue”, Iloba said.