CBN Intervenes at N380/$1 on I&E, BDC Windows
Devalues official rate from N306/$1 to N360/$1 effective Monday
The raging effect of the COVID-19 pandemic which has damaged appetite for assets across the world, as well as the significant crash in the price of crude oil, have forced the Central Bank of Nigeria (CBN) to technically devalue the Naira exchange rate.
Going forward, the Naira/
Dollar exchange rate on the Investors and Exporters' (I&E) window is now pegged at $380 to a dollar and would be allowed to freely move around the targeted band, THISDAY gathered from a reliable CBN source. The Naira closed at N372 to a Dollar on the I & E window yesterday.
"You may choose to call it technical devaluation if you like, but all I am 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.
"So, what we have done is to allow the Naira mirror developments in the marketdetermined I &E window," the source explained.
In addition, the source told THISDAY that from Monday, the exchange rate for the USD
on the Bureau De Change (BDC) window would also be adjusted to N380 to a USD, as against N360 to a Dollar it is at present. The N380 to a Dollar would also apply to the Small and Medium Scale Enterprises (SMEs) as well as customers requesting the greenback for invisibles such as tuition fees, Personal Travel Allowance and Business Travel Allowance.
Furthermore, THISDAY learnt that the official exchange rate would from next week, be adjusted to N360 to the USD, as against its current rate of N306 to a Dollar.
A circular from the CBN that was obtained last night confirmed the development. The circular addressed to all banks and BDCs titled, “Weekly Exchange Rate
Disbursement of Proceeds of International Money Transfer Service Operators (IMTSOs), dated March 20, 2020, seen by THISDAY last night, the central bank stated that from Monday, the applicable exchange rate for dollar sales from IMTSOs to banks would be N376 to a Dollar.
Also, the circular that was signed by the Director, Trade and Exchange Department, CBN, Dr. O.S. Nnaji, further stated that the exchange rate for banks to the CBN would be N377 to a Dollar; CBN to BDCs would be N378 to a Dollar; BDCs to end-users would not be more than N380 to a Dollar.
“Volume of sale for each market is $20,000 per BDC. Kindly note that the GBP rate
should be derived from the dollar cross rate on the date of sale,” it stated.
Trading data from Bloomberg terminal showed that at Thursday's auction of the CBN open market operations (OMO) instruments, demand had dropped significantly, which is a reflection that Foreign Portfolio Investors (FPIs) have since adopted a wait-and-see approach to the raging COVID-19 pandemic.
Global markets have continued to suffer volatility as fears of the spreading COVID-19 weigh on asset prices. The unfortunate development has seen central banks and policy makers around the world continue to introduce stimulus package tackle the impact of the disease
on economies.
The CBN had on Wednesday announced its decision to increase its intervention to boost local manufacturing and import substitution with the injection of an additional N1 trillion across all critical sectors of the economy.
The move, which was in line with the banking sector regulator’s efforts to cushion the impact of COVID-19 on the Nigerian economy, came two days after it had unveiled a six-point palliative to ameliorate the continued impact of the global pandemic on the country.
The CBN Governor, Mr. Godwin Emefiele, also announced a fresh N100 billion loan to support the health authorities to ensure laboratories, researchers and innovators work
with global scientists to patent and or produce vaccines and test kits in Nigeria, to prepare for any major crises ahead.
Emefiele had also said an implementation committee to drive the private sector contribution of N1.5 trillion infrastructure funding that will link farming communities to markets as agreed at the recently concluded ‘Going for Growth,’ economic roundtable held in Abuja, last week, would be set up next week.
Reacting to the development, the Director General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Musa Yusuf, told THISDAY that current macroeconomics realities as well as developments in the global economy has made exchange rate adjustment inevitable.
Yusuf, however also said he was not clear about what the position of the central bank on the issue of devaluation or exchange rate adjustment was.
"But the reality is that it is difficult, if not impossible, to subdue the market.
"My view is that current macroeconomic fundamentals cannot support the current exchange rate regime. This underscores the inevitability of an exchange rate adjustment.
“We actually do not have a choice in the circumstances. To do otherwise is to create new complications and precipitate a crisis for the economy. You cannot give what you don't have. The facts are glaring and overwhelming,” he added.