Buhari Backs CBN Flexible Forex Policy, Says It’s Down Payment for Success

• Market awaits details
• UBA Leads Utilisation as CBN Sells $131m to Banks

Obinna Chima with agency report

The flexible foreign exchange policy of the Central Bank of Nigeria got a presidential nod again yesterday as President Muhammadu Buhari said it would help the country’s economy, which had been badly hit by a slump in oil revenues.

“The central bank has moved to introduce a greater flexibility in our exchange rate policy. These actions are a down payment on our people’s ability to succeed,” Buhari said in an essay he published on the website of The Wall Street Journal. (See back page for full text)

Although the President did not give details of the policy, he explained that Nigeria needed it to boost its supplies of foreign exchange, adding that the country would need to radically increase its exports and productivity as well as improve the investment climate and ease of doing business.

The president’s essay could raise more anxiety about the details of the policy that Thisday reported yesterday might be unveiled this week. The paper had said its informed analysts believed the details might be released this Friday, being the day the CBN receives bids from authorised forex dealers.

Meanwhile, the CBN last week sold $131,323,071.09 to 11 commercial banks and three merchant banks, the returns of forex utilisation published by the respective financial institutions have shown..

However, dollar purchases by Dangote Flour Mills – $2,444,843; Dangote Sugar Refinery -$1,555,156.62; and IATA -$1,500,000; which were UBA’s biggest customers during the week under review, buoyed its performance in forex returns.

Also, with a total of $17,538,818, Stanbic IBTC came in second. The bank sold the greenback to a total of 147 customers. Out of this amount, 94 of the firms that Stanbic IBTC sold dollars to were institutional investors and foreign portfolio investors who were divesting from the country’s equities, bonds and treasury bills instruments.

FirstBank of Nigeria Limited held the third position with a total of $14,424,749.46 forex allocation it got from the central bank. The bank sold the dollars to 788 customers. FirstBank’s biggest customers were Dangote Cement Plc which purchased $2,000,000.

Guaranty Trust Bank Plc (GTbank) held the fourth position with a total of $13,119,712.75, just as Zenith Bank Plc with a total forex allocation of $13,110,393.04 came in fifth. Zenith Bank sold the greenback to a total of 496 customers. Also, Zenith Bank’s biggest customers in the week under review was the Dangote Group (Dangote Agro Sacks Limited, Dangote Flour Mills and Dangote Sugar Refinery Plc), which purchased a total of $2,000,000 from the bank.

Also, Standard Chartered Bank Limited held the sixth position with a total forex allocation of $11,601,339, Diamond Bank Plc came in seventh with a total forex allocation of $11,166,213.01, and Ecobank Nigeria got a total forex allocation of $8,377,592.95 from the central bank to be in the eight position.

Meanwhile, a Bloomberg report indicated that the banking sector regulator will probably make a pronouncement in a circular to banks, said a person, who asked not to be identified discussing the private talks held June 9 in Abuja, the capital.

Analysts including those at Renaissance Capital Limited have said they expect the central bank to allow the naira to weaken around a trading band in the interbank market, while allocating dollars at a fixed rate to industries the government deems strategic.

The central bank is still working out details of the policy, the person said, and may also reinstate a minimum holding period for foreign investors buying naira bonds.

CBN Governor Godwin Emefiele has faced calls for more than a year to devalue the currency, as other oil exporters from Russia to Kazakhstan and Angola have done, amid a rout in crude prices since mid-2014 to around $50 a barrel.

Investment into Nigeria has shrivelled as foreigners are put off by capital controls needed to defend the peg, while local businesses have struggled to import raw materials and equipment.

Naira three-month forwards rose to N301 against the dollar yesterday in London, poised for a record close and suggesting traders see the currency falling to about that level from the spot price of N198.5. Forward contracts maturing in a year traded at N340, also a record high.

Africa’s biggest economy removed a requirement for foreign investors to hold local-currency debt for at least one year in mid-2011. That led to Nigeria’s inclusion the following year in JP Morgan Chase & Co.’s local-currency emerging market bond indexes, tracked by more than $200 billion of funds, and also prompted naira yields to plummet.

The country was kicked out of the indexes last September because JPMorgan said the currency restrictions made it hard for investors to trade naira bonds.

Nigeria has held the naira at N197-N199 per dollar since March 2015, with Emefiele and President Muhammadu Buhari both insisting that a weaker currency would leave consumers facing higher prices. That’s already happened, with inflation accelerating to an almost six-year high of 13.7 per cent in April. The statistics bureau is due to announce figures for May this week.

The naira has plummeted to around N365 per dollar on the black market as shortages of the greenback worsened.

The black market rate may strengthen if the official one is weakened and inflows from investors pick up, according to the president of the Bureau de Change Operators of Nigeria, Aminu Gwadabe.

“The naira might trade around N300 to a dollar on the black market after the announcement, because we expect supply to improve,” he said, adding that “in the past weeks, the central bank created doubt in the market, which triggered another round of speculation.”