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Egypt Devaluation To Test CBN Resolve On Naira - Business - Nairaland

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Analysts Predict Naira Devaluation To N400/$ / Analysts Foretells Naira Devaluation To N400/$ / IMF Hints At Fresh Devaluation, Says Naira Is Overvalued (2) (3) (4)

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Egypt Devaluation To Test CBN Resolve On Naira by Adesiji77: 11:14am On Nov 05, 2016
After Egypt abandoned its longstanding struggle to hold the value of its currency against the dollar, all eyes will be on the Central Bank of Nigeria (CBN) to see its next move especially since both countries have closely trailed each other in terms of currency reforms.

The Egyptian pound has now gone from the second most expensive currency in emerging markets to the third weakest, crashing 62.5 percent to 13/$ from 8/$ after officials floated the local currency on Thursday Nov.3.

The float had become necessary to put a lid on an unofficial exchange rate growing in leaps and bounds, touching a record high of 18/$1 this week. This gives a spread of 10/$ between the official and unofficial rate hitherto a devaluation, more than fifteen times the spread size between Nigeria’s official and unofficial rates.

Charles Robertson, chief economist at investment bank, Renaissance Capital, says the next six months may be tough for the Egyptian pound but if the float regime works, it will put pressure on the CBN to allow a true float.

Compared to emerging market currencies, the naira is the fourth weakest at N310/$ (official rate), above Indonesia, Korea, Chile and Colombia, but the CBN’s role as the single largest supplier of dollars is distorting the market and eroding investor confidence.

“All that investors hope for is that Nigeria allows the market do its job in determining the naira-dollar exchange rate,” Robertson says.

He adds that the pressure from the international community on CBN to unshackle the market of its aggressive and misleading intervention is not as pronounced as pre-devaluation in June, because there are less foreign investors in the country currently.

“But when Nigeria goes on investment road show to raise foreign loans, investors will ask all the questions because they are probably thinking, if Egypt can do this, then why not Nigeria?”

Nigeria’s planned external borrowing of $30 billion dollars within three years (2017-2019) may have gone cold following a spat between the executive and legislative arm over the strain it may have on public coffers.

But the country will certainly face foreign investors for a planned $1 billion Eurobond this year, which is only the first tranche of a total $4.5 billion, as it tries to spend its way out of economic recession and avert high local borrowing costs.

Nigeria and Egypt have been leapfrogging each other with a raft of reforms to cushion the aftermath of a plunge in commodity prices and its ugly implication on their economies.

Weeks after Nigeria floated the naira in June, Egypt followed suit, although the International Monetary Fund (IMF) thought the Egyptian pound was still overvalued at 8.8/$ from 7.8/$.

However, the IMF has welcomed Egypt’s move to devalue some more and all seems set for approval for a $12 billion loan from the Fund.

The three-year loan, which was approved in principle in August, hinges on Egypt’s ability to secure $6 billion in bilateral financing, cut subsidies and adopt a flexible exchange rate.

Analysts at investment bank, FBN Quest say an IMF deal could also do Nigeria some good in boosting dollar supply to grease its illiquid currency market.

“So we are far from the intended floating exchange-rate regime because we cannot see the trigger which will prove the game-changer,” Chinwe Egwim, a fixed income analyst at FBN Quest said in a note to investors on Friday, Nov.4.

“We rule out a surge in the oil price, a huge programme of privatisation and IMF borrowing. The solution will be piecemeal and patience is advisable,” Egwim added.

Data from the CBN show that gross official reserves declined by $580 million in October on a 30-day moving average basis to $24.0 billion. The monthly average movement has been an outflow of US$490m over the past 12 months.

As in Nigeria, Egypt’s external reserves have plunged and both countries are dealing with a thriving black market where unmet demand from the official market run to, for cover.

Egypt’s reserves have hovered around $16 billion since the end of 2015, at half of the pre-2011 levels. But recent loans from the World Bank and Saudi Arabia helped replenish those reserves, which amounted to $19.6 billion at the end of September, compared with around $16 billion the month before, according to its central bank figures.

Both countries have come under the knife for using limited external reserves to defend their currencies against all odds.

However, Egypt appears first to react, citing the need to attract independent dollar flows and slow down the pace at which its external reserves were burning, as the reasons for allowing the Egyptian pound float.

Yvonne Mhango, sub-Saharan Africa economist at Renaissance Capital says “It is anyone’s guess when the currency issues in Nigeria will be resolved.

“They could even stay until Nigeria’s presidential election in 2019,” Mhango said in a note to investors on Thursday, Nov.3.

Nigerian President Buhari has often expressed his dismay at letting the naira weaken, spurring fears that it may take a change of leadership in Africa’s most populous nation to have a true naira float with less government intervention.

The IMF reckons Egypt will grow by 3.3 percent in 2016, above the 2.3 percent of both Nigeria and Morocco, or the 0.6 percent of South-Africa, and only behind Kenya’s 6 percent growth among the larger equity markets.

Ayo Teriba, an economist and CEO of consulting firm, Economic Associates, says whether Egypt’s currency float will test the resolve of the CBN is unclear except Egypt sees the policy through, without too much intervention from the CBE to defend the Egyptian pound.

“Egypt emphasized that they were waiting to raise dollar supply to a substantial amount so as to help the currency stabilise, but the CBN opted for a float when dollar inflow was gummed up,” Teriba said by phone.

The CBE, which also raised interest rates by 3 percentage points, said the decision to “liberate exchange rates” was intended to return the buying and selling of foreign currency to the banking sector to “better reflect supply and demand.”

http://www.businessdayonline.com/egypt-devaluation-to-test-cbn-resolve-on-naira/

4 Likes 1 Share

Re: Egypt Devaluation To Test CBN Resolve On Naira by Flexherbal(m): 11:17am On Nov 05, 2016
Naira never devalue reach?

8 Likes 1 Share

Re: Egypt Devaluation To Test CBN Resolve On Naira by ZainabOs(f): 1:10pm On Nov 05, 2016
Donno what this means. Can someone explain plsss

17 Likes

Re: Egypt Devaluation To Test CBN Resolve On Naira by Nobody: 7:01am On Nov 06, 2016
smiley
Re: Egypt Devaluation To Test CBN Resolve On Naira by timilehing(m): 7:02am On Nov 06, 2016
Re: Egypt Devaluation To Test CBN Resolve On Naira by sylvar02(m): 7:02am On Nov 06, 2016
So this Shiii is allover Africa


ok



[size=20pt]E kú rècéssìon èní ooo grin grin grin[/size]

7 Likes

Re: Egypt Devaluation To Test CBN Resolve On Naira by emeijeh(m): 7:03am On Nov 06, 2016
Where are the experts in this field?
Pls come and explain the writeup for us

35 Likes 1 Share

Re: Egypt Devaluation To Test CBN Resolve On Naira by yhuti(m): 7:03am On Nov 06, 2016
.
Re: Egypt Devaluation To Test CBN Resolve On Naira by idu1(m): 7:04am On Nov 06, 2016
ZainabOs:
Donno what this means. Can someone explain plsss




ZainabOs


Where are you from?
Re: Egypt Devaluation To Test CBN Resolve On Naira by AntiWailer: 7:04am On Nov 06, 2016
Buhari has scattered Egypt too.


Signed,
Wailers.

31 Likes 1 Share

Re: Egypt Devaluation To Test CBN Resolve On Naira by akilo1: 7:05am On Nov 06, 2016
ok
Re: Egypt Devaluation To Test CBN Resolve On Naira by emeijeh(m): 7:05am On Nov 06, 2016
idu1:





ZainabOs


Where are you from?
Don't ask...... Just explain

5 Likes 1 Share

Re: Egypt Devaluation To Test CBN Resolve On Naira by KINGwax007(m): 7:06am On Nov 06, 2016
...typing






I have nothing you say..
Re: Egypt Devaluation To Test CBN Resolve On Naira by Zaikon(m): 7:06am On Nov 06, 2016
.
Re: Egypt Devaluation To Test CBN Resolve On Naira by mrvitalis(m): 7:06am On Nov 06, 2016
Yes it is painful but i feel Buhari should allow the naira get her true value and allow market forces to determine price.. Cbn should stop selling dollars cheap... They should sale at the market price

When it cost more to import the to produce here then no one will tell the importers and investors to start producing here and this will create employers

Ever wondered why foreign firms with far much more wage bill and tax produce cheaper goods?? Because we had an over priced currency

11 Likes

Re: Egypt Devaluation To Test CBN Resolve On Naira by sekundosekundo: 7:06am On Nov 06, 2016
God I can't thank you enough. You hv blessed me without measure. I SAY THANK YOU. As I aged with GRACE.

75 Likes 4 Shares

Re: Egypt Devaluation To Test CBN Resolve On Naira by olamirewaju6190: 7:07am On Nov 06, 2016
how does this helps change price of rice for market??
the pure truth about buhaha and our own economy is dat …a president who could not generate wealth for himself in his private business cannot generate wealth for you through government business. A president who had to take bank loan to buy his nomination form would definitely have to take another bank loan to fulfill his campaign promises!
so Nigerians brace yourself, he don talk already say make Nigerians who get any country way He FT go make dem run o

5 Likes

Re: Egypt Devaluation To Test CBN Resolve On Naira by cheapgoals(m): 7:08am On Nov 06, 2016
Devaluing their currency undecided

At least not if it is freely traded floating currency

However Egypt should just dump reserves into the currency market, they can reduce their central bank base rate, and they can perform *Quantitative Easing*. All of which may probably cause their currency to devalue. By dumping reserves they change the supply and demand, forcing down the 'cost' of their currency, and possibly causing a snowball effect as currency traders sell their holdings to avoid losses.
Re: Egypt Devaluation To Test CBN Resolve On Naira by xolocious(m): 7:10am On Nov 06, 2016
Egypt is gradually feeling the impact... Nigeria on the watch again.

2 Likes

Re: Egypt Devaluation To Test CBN Resolve On Naira by 19naia(m): 7:10am On Nov 06, 2016
I already saw signs of devaluation of Naira on the XE report today. I have not seen Naira go beyond 315 to the $ for quite some time now.
Today i saw it at 317 and then i read this post the very same day... Hmm shocked
Even western Union exchange rate is up to N375 to $1 today and it was steady around 336 for a long while.

If Nigeria was not so overly reliant on exports, it would be quite nice to have N450 to $1. Any time Nigeria sells oil for Dollar, Nigeria can then sell the dollars for plenty Naira to spend locally for a robust economy. But Nigeria has trapped itself in a cycle of giving those dollars right back out of the country for imports that Nigeria could produce at home and with a surplus to export.
A Nigeria that is not so deep in an import dependency trench, will be okay with or without low value currency. Japan is a seriously robust economy and they are very comfortable with a ¥103 to $1 exchange rate. It is because their productivity and exports are enough to make a low value currency an advantage.
Nigeria will never sustain a giant status until it is actually giant in diversified productivity. If the biggest person in Africa delivered no product to others and just simply sat big and fat waiting to collect all it can from others to feed itself, it would be clear that he is just a long throat glutton trying to live beyond his means and to take more than he gives. This is the story of Nigeria and is a reflection of what the people have idealized. To get rich and have plenty by doing nothing. Thats been the job assignment of Nigeria's politicians as well. Getting rich while doing nothing. And that being the politician cultured mentality, they have influenced it into the way of the nation's economy. Nigeria is paying dearly for it's own doing and lack of productivity. There was never an escape, all the chop chop and corruption in a mentality that work and productivity is simply about going out to collect money without actually giving something back, it was always destined to come to a crash. The tree that is plucked and plucked without watering it, fertilizing it and caring for it to grow healthy, is destined to fail before it's natural time.

62 Likes 6 Shares

Re: Egypt Devaluation To Test CBN Resolve On Naira by martineverest(m): 7:12am On Nov 06, 2016
was really surprised to see them devalue their pounds...the recession is really bitting harder in many countries........nigeria is still better compared to others

10 Likes

Re: Egypt Devaluation To Test CBN Resolve On Naira by Nobody: 7:12am On Nov 06, 2016
emeijeh:

Don't ask...... Just explain
Exactly. Im sure he cant explain

3 Likes

Re: Egypt Devaluation To Test CBN Resolve On Naira by babyfaceafrica: 7:12am On Nov 06, 2016
noted
Re: Egypt Devaluation To Test CBN Resolve On Naira by Justiyke4u: 7:12am On Nov 06, 2016
And they are taking the hit now
Re: Egypt Devaluation To Test CBN Resolve On Naira by exlink10(m): 7:13am On Nov 06, 2016
ok
Re: Egypt Devaluation To Test CBN Resolve On Naira by onatisi(m): 7:16am On Nov 06, 2016
ZainabOs:
Donno what this means. Can someone explain plsss
It simply means the naira will be devalued more in the next few months .

1 Like

Re: Egypt Devaluation To Test CBN Resolve On Naira by espn(m): 7:20am On Nov 06, 2016
cry cryall I can say..everything about this country gets me confused..From its citizens to those in government..Political structure/confusion, Economic recession.. Moral decadence (cucumber) in the society at large.. The kidnappers,terrorist,criminals,ritualist are not left out..God save Nigeria..God Save Africa..God save the World..God Save humanity..Everything I bleeped..

1 Like

Re: Egypt Devaluation To Test CBN Resolve On Naira by emymeeky: 7:22am On Nov 06, 2016
angry
Re: Egypt Devaluation To Test CBN Resolve On Naira by grandstar(m): 7:22am On Nov 06, 2016
The proper economic tool to use is a float of the currency and it must be as clean as possible. That means that the exchange rate must be determined by market forces with little intervention from the government.

The CBN float does not make the cut. It's extremely dirty with the government fixing the rate at below 310. It had earlier dropped to 360 in June but the government intervened and made it less than 310. The huge disparity between the official and black market is the biggest signal that the float has been corrupted.

Buhari's mishandling of the forex market is the primary reason why the economy plunged into a recession. I have written off the economy due to his lamentable understanding of economics and his refusal to allow technocrats do their job.

10 Likes 2 Shares

Re: Egypt Devaluation To Test CBN Resolve On Naira by deenee: 7:28am On Nov 06, 2016
Naira is already free floating.


The main reason why there is still a wide margin between the official rate is as follows:

Corrupt politicians who steal money and covert to FX for storage at any cost. These morons now know that it is almost impossible to keep their stolen loot in Naira or even in any bank (all thanks to BVN) so what they do now is steal naira, get the aboki guys that sell dollar to mop up dollar at any cost for them and then they keep the dollar cash stashed away in various secret locations.

Importers that still patronise the black market esp those that import some of the items on the list of banned items that CBN won't allocate dollar for. Top of this list is fish, rice, tomato paste, frozen turkey/chicken furniture just to mention a few. I read a report somewhere (can verify if the data is true though) that Nigerians smuggle raw eggs worth over 8billion monthly through our borders. 30 billion naira worth of fish monthly. I don't even want to start quoting the figure for rice These figure is true are quite alarming. I just can't begin to imagine how much jobs we are creating for the countries where these food items come from. Jobs that should be in Nigeria. Hopefully the govt's efforts at self sufficiency will help reduce this trend.

Finally fuel importers and I pray Dangote's refinery will help solve this as over4 40 percent of our FX needs is channelled towards fuel import.

God bless Nigeria

26 Likes

Re: Egypt Devaluation To Test CBN Resolve On Naira by kings09(m): 7:28am On Nov 06, 2016
I comment my reserve. Make I enter church first...

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