Forex guidelines’ delay plunges naira to N367/$

The naira yesterday relapsed to N367 to a dollar in the paralell market from Friday’s close of N365, as traders react to Central Bank of Nigeria’s (CBN’s) delay in releasing the guidelines for the flexible foreign exchange policy.

The plunge in naira’s value, traders said, followed the rise in forex demand as fuel marketers and other forex users shop for the greenback to meet their obligations abroad.

President, Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe said the naira will continue to fall until the CBN releases the much awaited forex policy guidelines.

A CBN source said the guidelines for the flexible foreign exchange policy may be released before the end of the week, and would define the fate of the naira against the dollar.

The CBN, the source revealed to Bloomberg,  would likely make an announcement in a circular to banks. The source, however, pleaded not to be mentioned as he said he was not to be identified discussing the June 9 private talks that held in Abuja, the nation’s capital.

Analysts, including those at Renaissance Capital Ltd., said they expect the CBN to allow the naira weaken around a trading band in the interbank market, while allocating dollars at a fixed rate to industries, which the government deems strategic. The apex bank is still working out the details of the system.

CBN governor, Godwin Emefiele, has been bombarded with calls more than a year to devalue the currency, as other oil exporters from Russia to Kazakhstan and Angola have done, amid the decline in crude oil prices since mid-2014 to around $50 a barrel. Investment into Nigeria has shriveled as foreigners are put off by capital controls needed to defend the peg, while local businesses have struggled to import raw materials and equipment.

Naira three-month forwards, yesterday, rose to 301 against the dollar in London, poised for a record close and suggesting traders see the currency falling to about that level from the spot price of 198.5. Forward contracts maturing in a year traded at 340, also a record high.

Nigeria, Africa’s biggest economy, removed a requirement for foreign investors to hold local-currency debt for at least, one year in mid-2011. That led to the nation’s inclusion the following year, in JPMorgan Chase & Co.’s local-currency emerging market bond indexes, tracked by more than $200 billion of funds, and prompted naira to plummet. The country was kicked out of the indexes last September because JPMorgan said the currency restrictions made it hard for investors to trade naira bonds.

Economists have blamed the capital controls for exacerbating a foreign-exchange liquidity crisis caused by the drop in the price of oil, which accounted for two-thirds of government revenue and 90 percent of exports in 2014. Growth was negative in the first quarter for the first time since 2004 and a recession, or two consecutive quarters of contraction, is imminent, the central bank said last month.

Source: The Nation