Naira sustained its ascent over the weekend, appreciating by 1 per cent to close at N1,482.81/$1 at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
This comes as the Economic and Financial Crimes Commission (EFCC) intensifies the onslaught against illegal currency trading on one flank and the Central Bank of Nigeria (CBN) escalating its regulatory measures, notably raising the capital requirements for Bureau De Change Operators (BDCs) from N35 million to N2 billion for tier-1 BDCs, on the other hand.
Citing the need to regulate the banking industry, the CBN explained that the decision was to ensure the value of the naira was not undermined.
The Head of Risk Management at CBN, Blaise Ijebor, reiterated that FX trading on the street was prohibited, adding that BDCs have six months to comply.
To double efforts in combating speculation against the naira, the EFCC recently arrested illegal currency traders in Abuja, Lagos, Kano and Port Harcourt. According to the EFCC, more than 300 bank accounts connected to illegal foreign exchange trading have been frozen.
Amid this, the country’s FX reserves saw modest increase of $73.05 million week-on-week (w/w), reaching a total of $32.74 billion. Similarly, the naira appreciated by 1.0 per cent to N1,482.81/$1 at NAFEM while it stood at N1,500/$1 at the parallel market.
However, the total turnover at the market declined by 39.4 per cent week-to-date (WTD) to $851.83 million, with trades consummated within the N1,400.00/$1 – N1,549.00/$1 band.
In the forwards market, the naira rates recorded on the 1-month (+1.1 per cent to N1,504.10/$1), 3-month (+1.4 per cent to N1,546.65/$1) and 6-month (+0.6 per cent to N1,621.89/$1) contracts increased. Elsewhere, the rate on the 1-year (-0.1 per cent to N1,769.62/$1) contract declined.
Analysts at Cordros Capital noted that FX liquidity declined this week due to CBN’s lack of intervention in the FX market following weak FX reserves and moderate inflows from FPIs, leading to volatility of the currency in the FX market.
They said, “Looking ahead, we expect the currency to remain under pressure in the coming week given weak liquidity. However, further out, expectations are that there will be Eurobond issuance, in addition to multilateral financing from the World Bank coming in next month. If these come in and improve system liquidity, we could see the naira strengthen”.
In response to the development, the President, Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe stated that this was against international best practices.
Speaking at a panel session at an economic discourse organized by Vanguard Newspapers, Gwadabe criticized the negative label given to BDCs as financiers of terrorism and the illicit channel flow of money.
He noted that the current weak state of the naira was caused by the unearned income pursuing the naira and not due to demand for the dollar, adding that corruption was responsible for the depreciation of the naira.
Whilst stating that some of the policies of the CBN aimed at tackling street trading were not feasible, Gwadabe said exchange rate affects everything including migration and educational tourism.