‘How investors lifted FX market with $31.5bn in 9 months’, There is no gainsaying about the effects of the restored investors’ confidence on the Nigerian foreign exchange market, as Investors and Exporters (I&E) FX window has helped the nation’s rebounded economy with a whopping traded turnover of $31.46billion in nine months, The Daily Times checks have revealed.
The Central Bank of Nigeria (CBN) introduced the I&E FX window on April 20, 2017, and has since showed that Investors confidence in the Nigerian economy has improved significantly.
For instance, its contribution to the forex market in the first month of its creation in April 2017, stood at $0.61 billion, before its significant improvement to $1.32bn or 114 per cent in May. The Daily Times further checks revealed that the figure declared in June moved up to $1.63 bn and increased further in July to $1.86bn and $3.54bn in August 2017.
The I&E FX window, however, traded second highest turnover of $4.61bn in September since establishment, but depreciated to $4.30 bn in October.
In November, the autonomous forex window, declared total transactions worth of $4.51bn, while the year 2017 closed with traded turnover of $3.27 bn. On the other hand, the NAFEX in January 2018, recorded total traded turnover of $6.1bn, the highest transactions ever recorded since the autonomous forex window was opened in 2017.
FIC turnover in one month
The Fixed Income and Currencies (FIC) markets for the month of January, 2018, recorded total transaction turnover of N11.71 trillion, representing a 1.28 per cent decrease or N0.15 trillion from the value recorded in December, 2017. The latest monthly report by the FMDQ OTC Security Exchange indicated that transactions in the FX market settled at $14.01bn in January, 2018, an increase of 8.91 per cent or $1.15bn when compared with $12.86 bn value recorded in December 2017.
The FMDQ report showed that total value traded at the I&E FX Window in January 2018 settled at $5.25 bn, an increase of 36.87 per cent ($1.41bn) relative to the value recorded in December 2017 ($3.87bn). Total value traded at the I&E FX Window since inception (April 21, 2017) stands at $31.46bn. Considering the turnover in the Fixed Income market for the month under review, it settled at N5.33 trn, a 7.16 per cent increase MoM (0.36trn).
Transactions in the T.bills market accounted for 86.11 per cent of the overall Fixed Income market, an increase from the 84.00 per cent recorded in Dec. 2017.
But outstanding T.bills at the end of the month stood at N11.47trn (N10.60trn in December 2017), an increase of 8.21 per cent MoM (N0.87trn). FGN bonds outstanding value also increased by 0.96 per cent MoM (N0.08trn) to close at N7.64 trn, from N7.57 trn in December 2017.
FMDQ noted that trading intensity in the Fixed Income market for the month under review settled at 0.40 and 0.10 for T.bills and FGN bonds, respectively, from 0.38 and 0.11 recorded the previous month, respectively.
T.bills between the six (6) and twelve (12) months maturity buckets became the most actively traded, accounting for a turnover of N2.52 trn in Jan. 2018
“Short-term yields on the sovereign yield curve decreased by an average of 0.89 basis points (bps) and yields in the medium- and long-term spectrum lost an average of 0.68bps & 70.39bps respectively.
“The spread between 10-year and 3-month benchmark yields closed negative at 0.49bps for January 2018 (0.01bps in December 2017), as yields dropped in January 2018 following the redemption of T.bills that matured in December 2017 by the Debt Management Office”, the report stated.
Currency in circulation
Meanwhile, the nation’s currency in circulation has dropped by N0.25 trn, when compared to N1.9 trn recorded in January 2018 against 2.15 trn declared in December 2017, the Central Bank of Nigeria (CBN) has disclosed.
The CBN, in its economic report for fourth quarter disclosed that “at N2.15 trn, currency-in-circulation rose by 21.1 per cent, above the level in the third quarter of 2017. The development reflected the growth in currency outside banks.
According to the report, “Total deposits at the CBN amounted to N13.17 tn, indicating 7.5 per cent increase over the level at the end of the third quarter of 2017. The development was as a result of the rise in the deposits of banks, Federal Government and the “Others” in the review quarter.
“Of the total deposits at the CBN, the shares of the Federal Government, Banks and ”Others‟ were N6,018.10 bn (45.7 per cent), N4,320.37 bn (32.8 per cent) and N2,834.02 bn (21.5 per cent), respectively.
“Growth in banks‟ reserves at the CBN and currency-in-circulation accounted for the 16.5 per cent rise in Reserve Money (RM) to N6,477.6 billion at end-December 2017, compared with the level at end-September 2017.”
Currency in circulation between November and December 2017 was put at N1.79 trillion and N1.89 trillion respectively, the CBN revealed on its website. CBN disclosed that the currency in circulation, which is the physical money used for transactions between consumers and businesses opened this year at N1.99 trn and closed in February at N1.97 trn.
Contribution to Foreign Reserves
As the nation’s foreign reserves continues to grow with improved confidence in the Nigerian foreign exchange market and its management, the Nigerian Autonomous Foreign Exchange (NAFEX) window data has showed that the special forex window has contributed immensely to this development. However, in spite of challenges confronting the Nigeria’s economy, the nation’s foreign reserves have been on the increase since 2017, hitting $42.8bn in February, 2018.
Since June 2007, Nigeria’s foreign reserves had been diminishing from $62 billion to $28.6bn in May 2015 and further declined from $26.51bn in the second quarter of 2016 to $24.74bn in September of the same year.
But the Central Bank of Nigeria (CBN), on Thursday, said that the nation’s external reserves have climbed to $42.8bn as at Tuesday, February 13, 2018.
CBN’s view But the Governor, CBN, Mr. Godwin Emefiele, at the last Monetary Policy Meeting said the committee members viewed with satisfaction the growing patronage at the I&E window of the foreign exchange market and attributed the development to increased confidence by foreign investors and the preference of Nigerian investors’ and exporters’ for the window compared with all other windows.
The CBN Acting Director, Corporate Communications, Mr. Isaac Okorafor, attributed the successes in rising foreign reserves to the decline in usage of foreign exchange to import rice.
The CBN spokesperson explained that the CBN would continue to ensure liquidity in the interbank sector of the market as well as sustain its interventions in order to drive economic growth and guarantee market stability.
He expressed optimism that the Nigerian economy stood to gain massively from the bank’s forex management strategy as could be seen in the accretion to the foreign reserves, which now stands at over $40bn. Just last week, the apex bank spokesperson, in Abuja, pointed out that following the huge local rice production capacity stemming from the success of the CBN Anchor Burrowers Programme launched in 2015, it has increased local rice production by at least 1 million metric tons (MT).
This increase, according to some economic experts, is a clear indication that the economy is on the path of recovery from all sectors and will end the year on a positive development.
Unified FX rate
Meanwhile, following the introduction of uniform foreign exchange rate on invisible market, commercial banks have commenced a price war in a move to attract customers and increase market shares.
The Daily Times findings discovered that some commercial banks have started sales of Personal Travel Allowance (PTA), Basic travel Allowance (BTA), among others at N358/$1 to attract more end-users.
Currency analyst at Ecobank Nigeria, Mr. Kunle Ezun, said since the harmonisation of the invisible rate to N360/$1, commercial banks have introduced measures to win customers and enlarge their market shares.
He noted that players in the foreign exchange are leveraging on the CBN supply to gain market shares.
The President of Association of Bureaux De Change Operators of Nigeria (ABCON), Mr. Aminu Gwadabe, had lamented over commercial banks delisting the association, maintaining that banks excess charges forced the apex bank to remove commission on visible.
He thus questioned the apex banks’ differential in margins, stressing that BDC operators are only complementing the banks. He said: “Our stand is that CBN should remove the margin at which they are selling to banks and BDC operators.
“They are selling to banks at N357/$1 and to BDC operators at N360/$1. So automatically, that has put the operators at disadvantage. If banks are buying at N357/$1 and selling at N360/$1, which is our buying rate, how do we compete in the market?
“Banks in the past were doing illegal charges. Normally, the banks should not have charged any commission on rate since they buy at N357/$1 and sell at N360/$1.
Also, commenting, the South West Chairman, ABCON, Mr. Taiwo Ebenezer, said the measure may force the operators to close shops, stating that end-users might consider the parallel market instead of the banks. His words:
“The new measure will lead to low patronage. What the CBN is trying to achieve is to appreciate the Naira. All we expect is that equal measures should be given to key players.
“The parallel market is even selling below the CBN rate to banks. The end-users which should he patronise the registered BDCs will rather visit parallel market where no documentation is required.
Automatically, the CBN is closing the BDC operations in Nigeria which will cause unemployment. Nationwide, we have over 4,000 registered BDC operators.
If you multiply 4,000 by three staff in each BDC offices nationwide, that means over 12,000 staff will be out of work because of policy.
“The bottom line of CBN’s policy is to achieve Naira appreciation and by so doing, the volume of transactions that will go to bank against the BDC nationwide will increase.”
The Acting Director Corporate Communications, CBN, Mr. Isaac Okorafor, had said the feedback from the wholesale and retail segments of the Nigerian foreign exchange markets showed that customers were satisfied with their level of access to foreign exchange.
He said the degree of optimism displayed by all players underscored the fact that everyone was happy with the level of transparency in the market.