Experts lament widening FX premium to N130/$1 across all FX market segments

JUST LIKE THE OUTCOME WITNESSED at the previous primary market auction by the CBN, where analysts noted that continued standoff approach to the bonds market by investors will drive positive demand for treasury bills, cautious investor stance towards the bonds market has continued to aid increased demand for treasury bills at the primary market auctions so far.

Thus, investors’ appetite for treasury paper remained strong as the recent auction by the CBN recorded an oversubscription by 3.5 times and remains in line with the recent trend in the treasury bills market.

At the recent Nigerian Treasury Bills primary market auction (PMA) by the CBN on Wednesday, the apex bank offered bills worth N118.73 billion across the 91-day tenor for N3.54 billion, 182-day tenor for N4.12 billion, and then the 364-day maturity for N111.07 billion tenors as it oversold bills, but allotting N215.7 billion worth of bills as against the N118.7 billion on offer.

In a similar vein, as investors’ high demand buoyed market activities, the stop rates for the 91-day, and 182day bills remained unmoved at 2.5 percent, 3.5 percent, respectively, like was reported from the last session. But rates on the longer tenor paper moderated for the fourth consecutive auction by 61 basis points to close at 5.89 percent.

Market analysts have observed some buying interest in the secondary NTB market as the existing gaps of unmet bids get filled. Also, they are of the opinion that institutional investors will continue to find yields in the fixed income space attractive, while the emergence of some positive broad-based macroeconomic fundamentals could provide support for a mild bullish rally towards the end of the year.

FOREIGN EXCHANGE MARKET and banking experts have lamented the impact on the currency market of the stoppage of sale of dollar FX to bureaux de change operators in Nigeria by the Central Bank (CBN), saying that Nigerian manufacturers and business owners are now faced with the challenge of the forex crisis in Nigeria.

As a result, the premium between the CBN official Naira and the parallel market rates in the foreign exchange market has further widened to N130 per dollar after the decision of the apex bank to clip the wings of bureau de change operators in July this year in its effort to curb the menace of roundtripping, including the facilitation of illicit money flows, profiteering and bleeding of the country’s FX resources.

In the Nigerian Banking Sector Report entitled: ‘Resilience amid endemic and pandemic constraints,’ recently launched by Afrinvest West Africa, the research, stockbroking and investment company opined that the apex bank removed the official spot rate of N379 per dollar from its website in May, this year, replacing it with the NAFEX rate of N410.50 to a dollar, effectively devaluing the currency.

Explaining the rationale and attendant effect of the move by the CBN, Ike Chioke, group managing director, Afrinvest West Africa, pointed out that, while the move in the meantime brought the exchange rate unification closer by reducing the spread between the parallel market and official rates to N91.25 per dollar in June 2021 from N116 per dollar, “we can maintain a position that this was not sufficient to calm the pressure.”

Explicitly, the report maintained that the spread has continued to widen, increasing to N94 to one dollar by the end of July, this year, despite the recovery in crude oil prices above the $70 bbl threshold. It said this increased difference was further worsened by the CBN’s stoppage of forex supply to Bureau De Change (BDC) operators, as the spread crossed N130 per dollar on September 10, 2021, and with no sign of a near-term improvement at sight.

Accordingly, the report noted that the 60.7 percent year-on-year surge in import bills to N13.8 trillion recorded in the first half of 2021 was driven by the devaluation of the naira, and weak capacity to block up the demand gap, mounted pressure on the forex reserve as demand for FX increased.

According to the Afrinvest Securities report, “On the other hand, supply remains subdued because of low export earnings and dwindling reserves, following the impact of COVID-19. As the demand for imports accelerated, speculation on the Naira increased, with the CBN depleting the reserves to meet demand through the official channels. Also, the forex reserves, which opened the year at $35.4 billion further declined by 5.9 percent to $33.3 billion by the end of the first half of 2021.”

Meanwhile, Muda Yusuf, former director-general, Lagos Chamber of Commerce and Industry (LCCI), in his comments on the foreign exchange market, said the forex crisis is the biggest challenge facing businesses, adding that it was affecting many businesses, especially those in manufacturing.