•Warns against forex sale without documentation
•As forex rate N182.5/$ in parallel market
•N287bn FAAC allocation deflate cost of funds
By Babajide Komolafe
In apparent bid to reduce apprehension over the persistent decline in the nation’s external reserve and its ability to defend the naira, the Central Bank of Nigeria (CBN) has stopped update of data on the external reserve.
Meanwhile the depreciation of the naira in the interbank market and parallel market persisted till Friday, as the parallel market exchange rate rose to N182.5 per dollar on Friday, while the interbank exchange rate also rose to N177.1.
Vanguard investigation reveals that the CBN has stopped regular update of external reserve date on its website since November 14th. Prior to November 14th, the data was updated almost on daily basis. For example, since November 2nd the data was updated as on the following days: November 3rd, 4th, 5th, 6th, 7th, 10th, 11th, 12th, 13th, and 14th. But since November 14th, the apex has not updated the date.
When contacted, CBN Director, Corporate Communication, Ibrahim Muazu said he cannot provide specific reason why the data has not been updated saying he would investigate the matter.
The external reserve has declined by $6.38 billion or 14.5 per cent between December 31st 2013 and November 14th this year. It fell from $43.93 billion at the end of 2013 to $37.55 billion as at November 14th this year. The decline was influenced by increased foreign exchange sales by the CBN in its bid to defend the naira. As at Wednesday last week, it has sold $30.53 billion from January through the bi-weekly RDAS dollar sale. This represents 20 percent increase when compared to $25.37 billion sold last year. This is besides intervention dollar sales to banks to forestall depreciation of the naira in the interbank market.
Recall that the decline in price of crude oil price from $100 per barrel to $78 per barrel has triggered apprehension over the ability of the CBN to continue to use the external reserve to defend the naira, leading to massive exit of foreign investors from the nation’s stock market and FGN Bonds. For example, data released by the Nigeria Stock Exchange last week showed that outflow from foreign investors constituted 57.8 percent total transactions in the exchange in October while inflow from foreign investors constituted 29.73 percent.
Parallel Market Exchange rate hit N182.5/$ in parallel market
Meanwhile, the depreciation of the naira worsened on Friday as it recorded its lowest value against the dollar at the parallel market and interbank market on Friday.
The parallel market exchange rate rose to N182.5 per dollar, its highest in recent history, translating to 250 kobo depreciation for the nation’s currency last week. Similarly, the interbank exchange rate rose to N177.1 on Friday, its highest ever in the history of the market. Earlier on Wednesday, the naira suffered its worst depreciation at the official market, where it lost 182 kobo against the dollar, as the official exchange rate rose to N158.41 per dollar from N156.59 on Monday.
Cumulatively, the naira has lost 202 kobo at the official market last week, and 265 kobo this month. Also the naira lost N5.9 at the interbank market last and N11.45 this month.
Banks driving up parallel market rate
Investigations by Vanguard revealed that the depreciation of the naira in the parallel market is being driven by banks, and that it is a reflection of development in the interbank foreign exchange market. It was gathered that the banks have been selling autonomous dollars to BDCs at N180 per dollar. Confirming this development, Acting President of Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe said that since the BDCs depend on banks for foreign exchange supply, the parallel market rate depends on the rate at which banks sell dollars to BDCs. He said that as at Friday some banks sold between N178 to N180 per dollar, adding that those selling at N175 per dollar are the ones that would be delivered in one week.
CBN warns against forex sale without documentation
In another development the CBN on Friday warned banks against selling dollars to end users without adequate documentation.
The warning was contained in a circular issued on Friday by Director, Trade and Exchange Department, CBN, Olakanmi Gbadamosi. The circular titled, “Re: sales of foreign exchange without adequate documentation particularly shipping documents,” stated, “This is to inform all authorised dealers and the general public that we have observed that some authorised dealers have been indulging in the sale of foreign exchange for items which are not supported with necessary shipping documents, particularly on open account basis.
“It is therefore important to note that only imports which are backed with evidence of shipment and other relevant documents are eligible for foreign exchange. For avoidance of doubt, only transactions for which Letters of Credit are cash backed, or with matured Clean Lines or matured Bills for Collection are eligible for purchase of foreign exchange in the forex market.
For the sake of emphasis, “Front Loading” purchase of foreign exchange in both RDAS and Interbank shall no longer be permitted with effect from date of the circular. Any infraction whatsoever of these requirements by any authorised dealer shall be appropriately sanctioned”.
N287bn FAAC allocation deflate cost of funds
At the interbank money market, inflow of N287 billion statutory allocation funds halted the sharp rise in cost of funds in the market.
As a result in short term cost of funds which had risen to 19 percent on Thursday dropped 10.25 percent on Friday. Data from the Financial Market Dealers Quote (FMDQ) show that interest rate on Overnight lending rose which closed the previous week at 10.96 percent rose to 16 percent on last week Wednesday but fell to 10.46 percent on Friday. Similarly, interest rate on Secured lending (OBB) rose from 10.79 percent the previous week, to 15.58 percent on Wednesday, but fell to 10.21 percent on Friday.
The sharp increase in cost of funds was occasioned by huge outflow of cash for investment in treasury bills and for purchase of dollars at the bi-weekly official dollar sale on Monday and Wednesday.