Speculators, Traffickers Frustrate CBN Attempt To Stabilize Naira •Non-Oil Exporters Decry Lack Of Forex •Experts Declare Parallel Market Volatile

By on April 12, 2017

YAHOO GMail

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CBN Gov. Emefiele
CBN Gov. Emefiele

The ongoing effort by the Central Bank of Nigeria to stabilize the exchange rate may not yield the desired result as speculators continue to mop up the apex bank’s dollar intervention in the parallel markets.

Already, non-oil exporters have threatened to cease exports till restrictions limiting access to their proceeds from the interbank market are removed. The interbank market is the official window through which the Central Bank of Nigeria (CBN) trades on the nation’s currency against its international counterparts.

Reports showed that continued mopping up of the apex bank’s dollar intervention by speculators has led to the naira depreciating further in value to N410 at the parallel market.

Decrying their plight, non-oil exporters stated that the CBN had made it difficult for them to access their earnings from exports at the prevailing parallel market value, thus making it a disincentive for operators, having bought raw materials from farmers at street value and added value before such products were exported. They said that their problems were compounded by competing with foreigners who are now buying commodities directly from farmers for exports. If the situation is not addressed, the goal of the apex bank’s intervention in the forex market may be futile while the desire to attract foreign direct investments due to a stable currency may not be achieved. Also, the imbalance in import-export would further weigh in on the nation’s reserves, thereby prolonging the nation’s exit from recession.

Stakeholders in the non-oil export sector alleged that the CBN’s goal of saving the naira when the economy is weak is only a short-term palliative that would further enrich speculators’ pockets rather than encouraging activities that would boost forex inflow and enhance a balance of payments from import of goods and services. The exporters, also, indicted regulatory agencies for not being up-to-date in terms of required standards of trade partners, adding that many of the trade partners exploit gaps in standardisation requirements to cheat and price commodities exported below international benchmark prices.

Despite auctioning several millions of dollars in the last few weeks, the CBN has been battling naira volatility brought on by low oil prices, which plunged the economy into a recession, even as the multiple exchange policy continues to mask the pressure the currency is under and made it difficult to attract inflows as investors struggle to price naira assets.

Unrelenting currency speculators and traffickers have continued to evolve strategies to ensure that they frustrate the Central Bank of Nigeria’s (CBN) objectives of achieving exchange rate stability and convergence in the economy.

Findings revealed that several currency speculators, who got their fingers burnt as a result of the new foreign exchange (FX) policy measures and the sustained dollar injection by the central bank since February, have continued to resist the policy measures and are devising ways to manipulate the market.

Owing to the speculative attacks on the naira, the local currency which strengthened to N385 two weeks ago on the back of fewer dollar interventions by the CBN, continued its free fall closing at N410 to the dollar, compared to N405 from the previous day.

A currency trader alleged that some currency speculators now connive with bank officials to generate fake airline tickets just to enable them access personal travel allowances.

These funds are thereafter sold on the parallel market.Also, latent demand for FX, coupled with illicit funds from public office holders and others chasing few dollars, have contributed to the wild fluctuation of the naira on the parallel market in the past few days, despite the sustained intervention by the CBN.

In addition, the anticipated devaluation of the naira in the short-term, a lot of banks have been holding back their dollar cash in order to make a kill when the local currency is devalued.

Furthermore, the sale of tickets at a discounted dollar price by some international airlines has also contributed to the surge in dollar demand observed in the market recently, as passengers have rushed to buy the greenback for their summer holidays and for their children schooling overseas.

The President, Association of Bureau de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, confirmed that the activities of speculators and currency traffickers were having a negative effect on the market.

“We believe that there is a lot of illegal money in the economy being used to distort the market. When you have such funds that cannot pass through the banking system, if they tell you that the naira exchange rate is N500/$1, you can buy, just for you to frustrate the system.

“Most of the funds that cannot be kept in the banks have found their way into the parallel market. Also, I agree that speculators are still strategising because they have lost money and so they can’t just go away like that.

“Sometimes they (currency speculators) come up with propaganda saying that the CBN is not selling dollars to BDCs; CBN cannot sustain this policy, etc, and this kind of misinformation affects the rate,” the ABCON boss said.

Gwadabe recently blamed the depreciation of the naira on speculators’ onslaught and resistance by some banks. He urged the CBN to sponsor a bill at the National Assembly to make the naira the convertible currency in West Africa.

The Chairman, Export Group, Lagos Chamber of Commerce and Industry (LCCI), Dr. Obiora Madu, urged the CBN to revive the window for export proceeds, stating that the market prices of local commodities are higher than those of the international markets.

“We have always advocated a window for export proceeds. It was done before because exporters are not making money. The CBN should revive it as it is becoming more profitable to cut corners, with many exporters exploiting repatriation of proceeds to neighbouring African countries in order to access their dollars.

“The idea of foreigners directly sourcing commodities from the local farmers and markets is affecting commodity prices. Foreigners with soft funds are muzzling small businesses out of business. Politics will have to be right, regulation needs to come in and government needs to show commitment to its non-oil export agenda,” he added.

An analyst at Ecobank Nigeria, Kunle Ezun, who agreed that the activities of currency speculators were responsible for the volatility on the parallel market, advised the central bank to “take its mind off the parallel market.”

“It is a market it cannot control. It is an informal market. There is no way the CBN can control the naira exchange rate on the parallel market because they (CBN) does not even know the depth of that market,” he said.

However, Ezun disagreed that the central bank might devalue the naira in the short-term.

“I don’t foresee a devaluation in the short-term because the CBN has a lot of exposure on its FX futures market. Once you devalue, the strike of the FX futures would go up to mirror the new rate and would hit the CBN negatively.” 

Source cattnews

Posted 12/04/2017 10:51:37 AM

 

YAHOO GMail


 

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