Scarcity of Naira creates panic in FX market, as manufacturers, others jostle for Dollar

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BY BAMIDELE FAMOOFO

Uba Group

The unavailability of the new banknotes to meet rising currency demand and the move to limit local cash withdrawals across channels such as credit and prepaid cards by banks has created further concerns around the Central Bank of Nigeria currency redesign project.

Consequently, FX backlog continues to pile up while manufacturers, importers and travelers turn attention to the open market in the search for the greenback following banks’ directive for a 30-60-day application for FX for BTA or PTA purposes.

At the investors’ and exporters’ FX window, the Naira edged the dollar by N0.40 or 0.09 percent week on week to close at N461.50/USD from N461.90/USD in the previous week despite the growing FX pressure on the naira and the newly redesigned currency circulation fiasco.

On the other hand, the Naira lost strength against the dollar at the parallel market as the naira value dipped by 0.7 percent or N5 week on week to N750/USD from N745/USD last week.

Thus, market participants maintained bids between N460/USD and N465/USD at the I&E segment while in the open market, bids ranged between N745/USD and N752/USD.

A look at activities at the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged from the previous week as it closed the week at N445/USD from last week.

Also, in analysis of the Naira/USD exchange rate in the Naira FX Forward Contracts Markets, the trend across most tenors closed negative.

Thus, the 6-month Forward Contract was the lone gainer against the dollar as it rose 1.83 percent week on week to N500.42 per dollar. Meanwhile the 1-month, 2-month, 3 month and 12-month contracts all skid by 0.63 percent, 0.87 percent, 0.88 percent and 1.38 percent week on week to close at contract offer prices of N479.62/USD, N485.03/USD, N486.55/USD and N531.47/USD respectively.

In the oil market last week, brewing optimism stays on course regarding China’s oil demand. This development has seen a bull trend for oil markets this week so far with the WTI breaking the USD80 per barrel mark and the Brent Crude trend upward to USD86 per barrel.

“As the deadline for deposition of old banknotes inch closer, demand pressure is expected to stay unabated following the limited supply of the local currency as we transcend gradually into the cashless economy while we stay on the look for the multiplier effect of the cashless policy across all facets of the economy”

On the home front, the Bonny light crude price rally in the oil market by 2.6 percent or (USD2.16) week on week to close at USD86.47 per barrel from USD84.31 per barrel.

Commenting on the situation in the forex market in the review week, Group Managing Director, Cowry Asset Limited, Johnson Chukwu, noted that as the deadline for deposition of old banknotes inch closer, demand pressure is expected to stay unabated following the limited supply of the local currency as we transcend gradually into the cashless economy while we stay on the look for the multiplier effect of the cashless policy across all facets of the economy.

Similarly, during the review week, activity in the money market was muted given the zero matured and auctioned Treasury and OMO bills.

Hence, this created a buying sentiment in the secondary market as investors scrambled to mop up bills ahead of next week’s T-Bills auction.

NITTY fell for all maturities amid bullish pressure. Specifically, NITTY for 1 month, 3 months, 6 months, and 12 months moderated to 1.79 percent (from 1.80%), 2.53% (from 2.54%), 3.50% (from 3.57%), and 6.05 percent (from 6.24%), respectively.

Meanwhile, despite FAAC inflows totaling N990 billion in December, NIBOR rose across all tenor buckets, amid tight financial system liquidity conditions.

NBOR for overnight funds, 1 month, 3 months, and 6 months tenor buckets climbed to 11.13 percent (from 9.93%), 12.13 percent (from 10.93%), 12.85 percent (from 11.50%), and 13.55% (from 12.27%), respectively.