Despite efforts by the Central Bank of Nigeria (CBN) to restore sanity in the foreign exchange market by rolling out three new circulars, the naira suffered a further slide at the weekend.
The naira experienced another decline in both the official and parallel foreign exchange markets on Friday, reports Daily Independent.
At the parallel market, the naira depreciated to N1700/$ on Friday from the previous day’s N1640/$, while the official rate closed at N1537/$ compared to N1498/$ recorded on Thursday.
This resulted in a notable N163 gap between the official and parallel markets, round-tripping. raising concerns about potential
This is despite increased dollar supply totaling $3.83 billion over eleven days through the Nigerian Autonomous Foreign Exchange by Deposit Money Banks; the fresh rates indicate challenges in the foreign exchange landscape.
Commercial banks, the CBN, and international oil firms contribute to the forex transactions at NAFEM, with liquidity improving following a directive by the CBN to sell excess dollar stock.
The FMDQ Securities Exchange data revealed that “other investment” accounted for 54.6% ($594.74 million) of total capital importation in Q4 2023.
Analysts at the weekend are worried that despite CBN’s efforts to boost forex supply, challenges persist, and the gap between rates in the official and parallel markets is widening, raising concerns about potential round-tripping activities.
They argued that the recent circulars by the CBN, addressing issues such as personal travel allowances and foreign revenue repatriation, add complexity to the forex market dynamics.
The ongoing operational adjustments by banking institutions and IMTOs aim to accommodate the revised remittance framework.
In the first circular titled ‘Allowable channels for the payout of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA)’, the CBN directed all authorised dealer banks to restrict PTA/BTA payout to electronic channels only, including debit and credit cards.
In the second circular, the CBN revised upward, the allowable limit of price deviation for exports and imports to -15.0% and +15.0% of global average prices, respectively, from -2.5 per cent and +2.5 per cent previously, citing global inflation dynamics and other related challenges as reasons for the review.
Lastly, the CBN directed banks to limit cash pooling on behalf of IOCs (that is, the transferring of offshore funds to parent accounts) to a maximum of 50.0 percent of the repatriated export proceeds in the first instance, and the remaining 50.0 percent after 90 days from the date of inflow of export proceeds subject to the fulfilment of all documentation requirements.
Reacting, analysts at Afrinvest said, “While we laud the commitment of the Cardoso-led CBN management to sanitise the FX market, we maintain that a lasting solution to Nigeria’s FX crisis would require similar reform energy from the fiscal side, especially as it pertains to fixing FX supply side problems and blocking of the mass leakages in key government establishments and alleged FX speculation practices by some arms of the executives.
“As per our view on the circulars released, we believe the restriction of PTA/BTA payout to electronic channels would help curtail FX round tripping activities in that segment.
“Also, we posit that the upward review of the ceiling on price deviation for exports and imports should favour Nigeria’s exporters in competing markets, given that bilateral trades (even among developed markets) are increasingly driven by pricing incentives.
“On the circular limiting the allowable cash pooling on behalf of IOCs, though we are oblivious of whether the CBN conducted stakeholders engagement before taking the action, we think that the good intention of the policy may snowball into declining investment flows into the oil & gas sector should mutual understanding be lacking between the CBN and the IOCs on the policy goals”.
