Forex: CAN CBN SUSTAIN THE BLACK MARKET ONSLAUGHT? ~ By Omoniyi Akinsiju
With the dramatic appreciation of the Naira against the dollar and other major international currencies starting Monday, February 20, there had been shifty discomforts as expressed by many Nigerians despite the unrestrained excitement that greeted the impact of the Central Bank of Nigeria (CBN) recently introduced foreign exchange policy reforms.

Four days after the take-off of the policy, the Naira, at the black market, appreciated exponentially by more than 4% from N525 to a dollar to N480 to a dollar. As at Tuesday, a dollar was exchanging for N445, with even greater prospect of appreciating further against the greenback.

Of course, the market response is a testimony to the multiple layers of measures rolled out by the CBN to salvage a hitherto savaged foreign exchange market where the local currency had been on a free fall, especially at the black market.

Expectedly, the naira had been severely pummelled in the forex segment of the economy in direct consequence of an acute shortage of organically sourced dollars and a slowed down flow of the greenback from foreign investors.

However, the CBN, had through an insistence on managing the float of the Naira against other currencies sustained the naira/dollar rate at N305 to a dollar at the interbank forex market. This had drawn different hues of flaks from some commentators who insisted on a free float of the Naira even as some other commentators rallied to the support of the CBN, defending the apex bank managed float of the country's forex regime on basis of the lean foreign exchange earnings as a result of the combination of vastly reduced crude oil production and internationally compelled low price of crude oil.

Things started taking a perceptible turn for the good in November 2016 when militant activities in the oil producing Niger Delta area started petering out while the collaborative position of the OPEC and non OPEC member countries led by Russia, fired crude oil price over the $50 per barrel mark.

This was the needed elixir the Nigerian economy desperately needed, especially at a time inflation rate was looking runaway and productive activities were grounding to excruciatingly painful halt. Thankfully, the crude oil price spike and increased price provided the juice to the country's dwindling foreign reserve which had been decimated to as low as $23billion. The reverse of fortune soon commenced the consistent accretion to the foreign reserve. Within a twelve week period, starting November, 2016 to February, 2017, the foreign reserve added more than $8billion and hugged the $30billion psychological mark.

Apparently, this provided the impetus to the CBN to stream the 'meet all demand' measure. So now, the Personal and Business Travel Allowance that had hitherto had peripheral access to the foreign reserve, and payment of school fees plus medical treatment abroad were all brought in to banking circle thus vastly reducing the pressure points that led to the flourishing of the black market.

This is even as the CBN pumped more dollars into the interbank forex market at $6million daily intervention in the spot segment of the market. This compares with the miserly $1.5million daily intervention it used to undertake. This, combined with the clearing out of more than four billion dollar backlog of demand through its shorter 60 days maturing future market segment, were enough reasons for the Naira to start a sharp climb up against the dollar.

But now, a new concern seems to have emerged; can this new Naira virility be sustained? The first response to this is predicated on keeping the peace in the Niger Delta. It would seem the Federal Government has been able to persuade the Niger Delta of its seriousness to dialogue and impact a developmental agenda in the area.

In the matter of sustaining this marginal oil price increase, there's a growing international confidence that price of oil per barrel may hit the $60 mark. This is because critical stakeholders in the collaboration to cut down on oil between OPEC and non OPEC countries have started demanding for a push back of the six month due date for the expiration of the collaboration.

Iraq has been particularly loud in the call to extend the time period for scaling down national supplies for another six months with eyes set on $60 per barrel. Iraq is being joined by oil producing giant, Total, in this call. The prospect of this call being endorsed is said to be potent and so guarantees sustained high price.

As it were, it would seem this new forex regime is sustainable. CBN decision to heavily fund the supply side of the forex market is truly a welcome policy, however, substantial credit should be ascribed to the emerging culture of transparency and integrity that is defining government responsibility and service delivery.

Akinsiju, Public Policy Analyst, writes from Abuja.

R

I think CBN should have waited till Reserves are up to 36/38 Billion USD before they struck.

Unmet demand is at least 2bn USD. Within one week, Cbn brought out 530 million USD from Reserves to defend the currency. More or less subsidising foreign Travels & foreign education. And some 'Forwards'. And you see, the banks were not even liquid enough to take all that the Cbn offered.

Last week, most people did panicked sales. Now, demand is picking up. Where you have 2bn USD demand & 530m USD supply, what happens?

Amoto94 can you space it?

sholatech:
I think CBN should have waited till Reserves are up to 36/38 Billion USD before they struck.

Unmet demand is at least 2bn USD. Within one week, Cbn brought out 530 million USD from Reserves to defend the currency. More or less subsidising foreign Travels & foreign education. And some 'Forwards'. And you see, the banks were not even liquid enough to take all that the Cbn offered.

Last week, most people did panicked sales. Now, demand is picking up. Where you have 2bn USD demand & 530m USD supply, what happens?

This is a general misconception, the CBN do not withdraw from the Foreign Reserves and in fact has added about $500 million in the last two weeks -- $75 million this week alone.

For the record, the money the CBN is auctioning is in accordance with 2017 budget provision -- official exchange rate of N305 with the oil benchmark pegged at $44 a barrel. Therefore, it is part of N2.2 trillion stipulated in the 2017 budget to come from oil revenue.

The subsidised rate is still above N305/$ official rate, commercial banks are directed not to sell more than 20% above the official rate, which is about N375/$. This fund is needed to fund capital projects in Naira and not dollars. Hence, the exchange.

So whether we can sustain it or not, 2017 budget must be funded, either through loan or revenue generation. Let just pray militants continued to yield to the agreement.

Truth234:
Amoto94 can you space it?

Done. Mynd44

Truth234:
Amoto94 can you space it?



This is a general misconception, the CBN do not withdraw from the Foreign Reserves and in fact has added about $500 million in the last two weeks -- $75 million this week alone.

For the record, the money the CBN is auctioning is in accordance with 2017 budget provision -- official exchange rate of N305 with the oil benchmark pegged at $44 a barrel. Therefore, it is part of N2.2 trillion stipulated in the 2017 budget to come from oil revenue.

The subsidised rate is still above N305/$ official rate, commercial banks are directed not to sell 20% above the official rate, which is about N375/$. This fund is needed to fund capital projects in Naira and not dollars. Hence, the exchange.

So whether we can sustain it or not, 2017 budget must be funded, either through loan or revenue generation. Let just pray militants continued to yield to agreement.

I really don't see the relationship you trying to enlighten us between the budget & defence of Naira with balance on the reserves. I indicated the defence of the Naira will slow down the growth of our reserves. I still maintain that our Naira is been defended by our foreign reserves & Cbn intervention is from this.

sholatech:


I really don't see the relationship you trying to enlighten us between the budget & defence of Naira with balance on the reserves. I indicated the defence of the Naira will slow down the growth of our reserves. I still maintain that our Naira is been defended by our foreign reserves & Cbn intervention is from this.

No, not the recent intervention. It is not from our foreign reserves but oil revenue generation. People should know the difference.

Here is a link to CBN foreign reserves statement https://www.cbn.gov.ng/IntOps/Reserve.asp?MoveDate=3/2/2017%2011:44:07%20PM

The way non financial gurus be looking at this

We hope so...

Perhaps, if current levels of crude oil production can be maintained/increased and sustained in the long run.

Jamb kweshun

This is the question everyone should be asking...

Can the CBN continue to pump $350 million dollars week in, week out...?!!!

If they can... then dollar shouldn't have a problem going back to #199...

But the cabals nko...?!!! won't they hijack it and stack dollars in safes and septic tanks somewhere in their grandpa's house...?!!!

Only time can tell the fate of naira.
For now, I guess I'm excited to see naira appreciate over dollars.

https://www.youtube.com/watch?v=9B05tlXYAhU

No, The $25b reserves CBN keeps brandishing about na big lie. Dem don loot am to like $2b.

Meanwhile who watched the Bellew Haye fight last night?

If we can maintain the oil production level of 2m barrels per day and with the current price of oil over $50 per barrel it can be fully sustained.

I for see osinbajo sustaining this production level because of his diplomatic dealing with the people of the Niger Delta unlike his Vegetative Boss who have gone AWOL.

If they can sustain this for the next 10 months, speculators/hoarders will go back to village.

sholatech:
I think CBN should have waited till Reserves are up to 36/38 Billion USD before they struck.

Unmet demand is at least 2bn USD. Within one week, Cbn brought out 530 million USD from Reserves to defend the currency. More or less subsidising foreign Travels & foreign education. And some 'Forwards'. And you see, the banks were not even liquid enough to take all that the Cbn offered.

Last week, most people did panicked sales. Now, demand is picking up. Where you have 2bn USD demand & 530m USD supply, what happens?

Take it from me, you ar one of the smartest chaps on this forum.
A lot would have been heaping praise on osinbajo and making biblical postulations that the dollar will come down under his watch. Well analyzed my friend. Very spot on. CBN should have been patient to build the reserve to >$35billion before going on the black market onslaught. We live in a country where the demand for dollar dwarfs what with have in our national treasury.

Not at all

ednut1:
No, The $25b reserves CBN keeps brandishing about na big lie. Dem don loot am to like $2b.

Are u alive? u don't know anything at all. Better carry ur ignorance and go if u don't know what to type.

ednut1:
No, The $25b reserves CBN keeps brandishing about na big lie. Dem don loot am to like $2b.

That is not true

Hope it last

peter1994:
The way non financial gurus be looking at this

They won't understand all the big big grammar unless they are economists.

I think with the recent happenings in the country and the action of the CBN injection dollar into the market yes it can.

Truth234:


No, not the recent intervention. It is not from our foreign reserves but oil revenue generation. People should know the difference.

Here is a link to CBN foreign reserves statement https://www.cbn.gov.ng/IntOps/Reserve.asp?MoveDate=3/2/2017%2011:44:07%20PM

You're mixing things up.

Dollar revenue from oil sales and other exports goes into reserves.

When you sell dollars, for imports, you take from your reserves.

The fact that the link you posted shows a net increase doesn't mean they didn't take from reserves. It means there was more addition to it than what was taken.

Truth234:
Amoto94 can you space it?





This is a general misconception, the CBN do not withdraw from the Foreign Reserves and in fact has added about $500 million in the last two weeks -- $75 million this week alone.

For the record, the money the CBN is auctioning is in accordance with 2017 budget provision -- official exchange rate of N305 with the oil benchmark pegged at $44 a barrel. Therefore, it is part of N2.2 trillion stipulated in the 2017 budget to come from oil revenue.

The subsidised rate is still above N305/$ official rate, commercial banks are directed not to sell more than 20% above the official rate, which is about N375/$. This fund is needed to fund capital projects in Naira and not dollars. Hence, the exchange.

So whether we can sustain it or not, 2017 budget must be funded, either through loan or revenue generation. Let just pray militants continued to yield to the agreement.

Debate like this is what makes me to frequent the nairaland platform. Please guys keep it up.

We have 170 millions economics in Nigeria, some are here. You hear something like why can't the CBN meet Trump for dollars.

Ok

we hope so I also remembered that t he 2017 budjet was based on low price per barrel so if the price per barrel of crude oil is increasing then it should be able to maintain our reserve

AND THE THREAD DIES. THIS ONE IS WAY OVER THE HEADS OF WAILERS AND ZOMBIES.

I wish to be tutored on all these things cos I'm kinda lost a bit sha but I understand a little. I hope naira maintains this exchange rate with dollar though.