By Babajide Komolafe & Nkiruka Nnorom
LAGOS—The naira, yesterday, depreciated to N281.85 per dollar in the interbank foreign exchange market as the Central Bank of Nigeria, CBN, sold $4.02 billion to clear the backlogs of matured foreign exchange obligations of banks.
Meanwhile, the naira appreciated to N340 per dollar in the parallel market due to panic selling which boosted the supply of dollars into the market.
Consequently, the premium (difference) between the official interbank market and the parallel market dropped to N68.15 from N168 per dollar last week.
Prior to, yesterday, the inter-bank exchange rate was fixed at N197 per dollar via controls and administrative measures which paralysed trading activities in the inter-bank market. But last week, the CBN introduced a flexible exchange rate regime which allows for the determination of the exchange rate by market forces of demand and supply.
Under the new regime, the CBN can intervene in the market by conducting a Secondary Market Intervention Sales, SMIS, through the sale of foreign exchange to Authorised Dealers (wholesale) or to end-users through Authorised Dealers (retail).
CBN intervention
Yesterday, the CBN, in order, to kick-start the interbank trading conducted Special Secondary Market Intervention Sales, SMIS, to purposely clear the over $4 billion backlog of matured foreign exchange obligations of banks.
The results of the foreign exchange sales were announced by the Financial Market Dealers Quote, FMDQ. According to FMDQ, the CBN sold $532 million in the spot market (immediate delivery) and $3.489 billion in the Futures market (delivery in the future). Out of the $3.487 billion sold in the Futures market, $697 billion is for One Month Future (1M), $1.22 billion for Two Months (2M) and $1.57 billion for Three Months (3M).
How the market operated
Vanguard investigations revealed that the interbank market opened as the 21 banks submitted bids to CBN for their matured foreign exchange obligations.
This was followed by each bank posting their Buying (bid) and Selling (Offer) exchange rates on the Financial Market Dealers Quote, FMDQ, trading platform. Most of the selling rates quoted in the early hours of the morning ranged from N260 to N274 per dollar. According to a banker who spoke to Vanguard on condition of anonymity, “Everybody wanted to buy, nobody indicated any intention to sell because there was no dollar in the market. Consequently, there was no transaction for most of the day.
By 4p.m., the average selling rates had dropped to N254, the market waited for CBN to announce the result of the bids submitted by the banks. The much awaited announcement came around 5p.m., that the apex bank sold $532 million at N280 per dollar in the spot market.
However, the CBN allowed interbank trading to be extended by two hours to allow market forces determine the interbank exchange rate. After about one hour of trading, the FMDQ announced a closing exchange rate of N281.85 per dollar for the interbank market.
Acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor who confirmed this development in a statement said: “The CBN was happy that the objectives of the CBN to clear the FX demand backlog, perform its role as strictly a market intervention participant; and re-launch a functioning and efficient inter-bank market, were being met.
“The CBN, in line with its desire to promote a transparent, liquid and efficient market, and in order to engender market confidence and ensure credible price formation, intervened in the market through a special Secondary Market Intervention Sales, SMIS, addressing the issue of the foreign exchange demand backlog by clearing $4.02 billion through spot and forward sales. This served in no small way to stimulate price discovery, with the determination of a marginal rate of N280.00 per dollar through the Special SMIS process.
“So, we can state to you categorically, that the foreign exchange demand backlog has now been cleared and behind us for good.”
He assured the market participants and the general public that the Bank was resolutely committed to making the Nigerian foreign exchange market globally competitive, credible, transparent, liquid, and efficient.
He lauded market participants that collaborated in their conduct to achieving these feats and looked forward to another successful and historic day on June 27, 2016, when the market launches its innovative hedging product, the Naira-settled OTC foreign exchange Futures.
Panic selling in parallel market
Meanwhile, the naira appreciated in the parallel market to N340 per dollar, due to panic selling which boosted supply of dollars into the market.
According to a BDC operator who spoke to Vanguard on condition of anonymity, “a lot of dollars came into the market today from people selling their dollars out of panic, because of uncertainty of how the new policy will affect the exchange rate in the parallel market. In a bid to exploit the situation, BDCs offered lower bid (buy) rates, some as low as N310 per dollar.”
Investigations, however, reveal that though BDCs reduced their bid rates in order to buy cheap, they still quoted selling rates as high as N350 in some segments of the market.
NSE retreats as investors lose N164bn
The four day rally that greeted activities on the Nigerian Stock Exchange, NSE, last week following the announcement of flexible foreign exchange policy by the CBN, was halted yesterday, with investors losing N164 billion of their investment.
According to the trading results announced by the NSE, total value of listed equities or market capitalisation dropped by N164 billion to N9.881 trillion from N10.045 trillion, representing 1.6 per cent decline. In the same vein, the All Share Index lost 477.37 basis points to close at 28,769.90 points from 29,2457.27 points, also representing 1.6 per cent decline.
Also, in what was a reversal of the trend in the previous week, investors’ sentiment across various sectors waned with exception of oil and gas sector and insurance sector that recorded marginal increases. The Alternative Securities Market, ASM, a window for indigenous small and medium scale industries and other start ups to list on the Exchange, closed flat at 1,212.54 points
The banking sector depreciated the most, reclining by 2.6 per cent as 13 banks shed weight out of 33 losers that emerged during the day. The losses in the banking sector were fuelled by five per cent and 4.60 per cent losses in the share of Ecobank Transnational Incorporated, ETI, and Diamond Bank Plc respectively. The NSE 30 Index and the consumer goods sector weakened by 1.7 per cent apiece, to settle at 1,276.22 points and 722.64 points respectively. The industrial goods sector was down 1.2 per cent to 2,064.13 points from the previous close of 2,109.91 points.
Gainers and Losers
There were almost two losers to a gainer as 33 stocks emerged losers as against 17 that gained weight. ETI Plc and Nigerian Breweries Plc led the laggards with five per cent price depreciation to close at N16.15 and N141.42 respectively. National Aviation Handling Company, NAHCo, dipped by 4.96 per cent to close at N4.02; PZ Cussons went down by 4.91 per cent to close at N21.11, while Dangote Sugar Refinery Plc shrank by 4.86 per cent to close at N6.66.
Others are NPF Micro-finance Bank Plc, 4.84 per cent to close at N1.18; Airline Services and Aviation Plc, 4.74 per cent to close at N1.81; Diamond Bank Plc, 4.60 per cent to close at N2.28; NEM Insurance Plc, 4.59 per cent to close at N1.04 and Fidelity Bank Plc that depreciated by 4.41 per cent to close at N1.30 per share.
Neimeth International Pharmaceutical Plc, on the other hand, led the gainers with 8.89 per cent to close at N0.98, followed by Law Union & Rock Plc with an eight per cent increase to close at N0.54, while Champion Breweries Plc chalked up by 7.25 per cent to close at N3.70 per share. GlaxoSmithKline went up by 5.49 per cent to close at N15.00, while Honeywell
FlourMills Plc Nestle Plc and Mansard Insurance Plc were up five per cent each to close at N1.89, N794.88 and N2.31 in that order.
Analysts at United Capital Plc had said that while increase in Foreign Portfolio Investors, FPIs, is expected in the near term, a full resurgence would likely be delayed until the CBN demonstrates an effective management of the new market framework.
According to Emeka Mmadubuike, Chairman, Association of Stockbroking Houses of Nigeria, ASHON, the downward trend witnessed in the market was just a normal market circle. He noted that since the market has gone up for about four straight days, it is expected that profit taking activity will resume by bargain hunters no matter how marginal the profit is. He stated that it becomes abnormal when there is s consistent upward or downward movement in any market.
Mmadubuike explained that given the new forex policy, investors are treading cautiously to see how event turns out before taking full leap.
Agreeing with Mmadubuike, Mr. Johnson Chukwu, Managing Director/CEO, Cowry Assets Management Limitd, said the reversal is expected since the rally recorded last week was not driven by any market fundamentals.
He noted that local investors had simply swooped on stocks based on speculation that foreign investors would return to the market.

http://www.vanguardngr.com/2016/06/naira-depreciates-n281-85-per-dollar-cbn-clears-4-02bn-backlog/

Still too early for me to listen to any speculations or agents of doom. Make I just jejely dey observe am for the next one month.

eph12:
Still too early for me to listen to any speculations or agents of doom. Make I just jejely dey observe am for the next one month.

na ur way sure pass.lol

spargs:
na ur way sure pass.lol

Abi o! make person just dey observe first...

This isn't gonna be sustainable as long as we are buy more dollars than we earn.

If I were CBN I will just put dollar at a rate that will automatically discourage importation of any finsihed goods so that we can start local production once and for all.

Petrol prices and many essential commodities will go up but paillaitives in mass transport should be provided....

N450 to a dollar is a good start.

https://www.youtube.com/watch?v=09BltNiwTaU

[size=14pt]Naira pulls back from record low as stocks advance[/size]

Nigeria's naira gained slightly on the second day of trading without a peg. The unit fell to a record low of 286.50 in early trade but recovered slightly to close the day at 283.50. The central bank spent more than 4 billion dollars on Monday to clear pent-up demand for foreign currency. The naira started trading at 255 to the dollar on Monday but ended with 530 million US dollars being traded at 280 to the dollar among 21 banks.