CBN Clears $4.55bn in Spot and Forward Trading as Naira Peg is Lifted

• Effective rate is N280/$, scores of high bidders lose money
• Profit taking halts equities bull run, overnight lending rate hits 15%

Goddy Egene, Eromosele Abiodun and Obinna Chima

Trading took off under the new rules for the Nigeria Interbank Foreign Exchange (NIFEX) market monday, with the Central Bank of Nigeria (CBN) participating in spot and forward trading, where it met 100 per cent of demand in the FX market with a total of $532,867,169.11 and cleared the backlog of $4.02 billion pent-up demand for FX, respectively.

Following the central bank’s forward and spot sales, the naira settled at N280 to the dollar on the interbank market, but for scores of dealers with higher bids, they ended up losing money.
Details of the FX trading seen by THISDAY showed that the highest bid on the spot market yesterday was N382/$ while the lowest bid was N197/$.

CBN Governor, Mr. Godwin Emefiele had said last Wednesday when he unveiled the revised ground rules for NIFEX that “whatever comes out at the end of the day as the marginal rate will be the rate that is recognised officially by the world as the rate for the naira. I do not expect that another rate will be recognised in the market”.
Dealers said there was calm in the market, even as operators said they saw the new FX rules as a big relief.
A market source, who pleaded to remain anonymous, said: “The market opened as expected and we saw transparency of rates and price discovery in the market. But again, there was not enough trading as expected because people were careful.

“But for the first time in close to two years, we saw live trading. It was like the market coming back to what we used to see in the past. Rates opened at N275-N280 to a dollar and later closed at N255 to a dollar before the CBN stepped in. But there wasn’t volatility in the market.”

Meanwhile, the overnight tenor of the Nigerian Interbank Offered Rate (NIBOR) increased significantly to 15 per cent yesterday from two per cent last Friday, after the central bank debited the accounts of commercial lenders to cover dollar purchases by the banks.

However, the naira, which had rebounded on the parallel market since the announcement of the new FX rules, depreciated monday to N345 to a dollar, weaker than the N335 to a dollar on Saturday.

Providing clarity on the first day of trading after lifting the naira peg, the CBN monday stated that the foreign exchange market had a robust start, saying it cleared the backlog of $4 billion pent-up demand for FX with the naira exchanging at N280 to the dollar.

The Ag. Director Corporate Communications of the CBN, Mr. Isaac Okorafor, said last night that the CBN was happy that in its objective to clear the FX backlog, it performed its role as strictly a market intervention participant, while the re-launch of a functioning and efficient interbank market, was met.

He said: “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 special Secondary Market Intervention Sales (SMIS) addressing the issue of the FX 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/$ through the special SMIS process.

“So we can state to you categorically that the FX demand backlog has now been cleared and behind us for good,” he added.

He further assured market participants and the public that the central bank was resolutely committed to making the Nigerian FX 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, when the market launches its innovative hedging product, the Naira-settled OTC FX Futures.

Also, following the release of the revised guidelines for the operation of the NIFEX, the two-way quote (2-WQ) interbank FX market has gone live on the platform of FMDQ OTC Securities Exchange (FMDQ), with the CBN’s authorised dealers setting the pace for the market-driven trading window through the FMDQ Thomson Reuters foreign exchange trading system.

The Vice President & Divisional Head, Marketing & Business Development, FMDQ, Tumi Sekoni, in a statement yesterday explained: “The interbank 2-WQ FX market will, through the concerted efforts of the over-the-counter (OTC) exchange and all market participants, serve to enhance greater investor confidence in the Nigerian FX market.

“With its potential to drive transparency and liquidity, FMDQ, through the system, is adequately equipped to provide a complete and consolidated marketplace for FX trading and reporting, offering market participants and regulators a robust and flexible set of tools to support the full trade workflow.

“The reforming of the 2-WQ interbank FX market brings about a lot of promise for the resuscitation of the Nigerian FX market and by extension the development of the nation’s economy.”

On the Nigerian Stock Exchange, however, the stock market closed in the red monday as profit taking dominated, contrary to expectations that the market will sustain the bull run that began last Wednesday when the CBN removed the naira peg.

The market surged by 7.4 per cent last week as investor sentiment strengthened on the new forex policy.
But instead of consolidating on the gains recorded last week, the market declined yesterday as the Nigerian Stock Exchange All-Share Index (NSE-ASI) fell by 1.63 per cent to close at 28,760.90, from 29,257.27 last Friday. Market capitalisation shed N164 billion to close lower at N9.881 trillion.

Market analysts said despite growing expectations that foreign investors would make a return to the market, profit taking thrived as investors off loaded most of the stocks that made significant gains last week.

Bellwethers such as Dangote Cement Plc, Nigerian Breweries Plc and Zenith Bank Plc were among the top price losers. In all, 33 stocks declined as against 17 that appreciated.

Stock trading also fell by 67 per cent as investors staked only N2.25 billion on 416.662 million shares, down from N6.791 billion invested in 628.753 million shares last Friday.