COVID-19: Forex panic buying sends naira crashing

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Panic  buying by foreign currency traders may have triggered another round of depreciation of the naira yesterday sending it to a low of N375 to $1 from N355 where it had traded since  last year. Traders who spoke to Daily Sun attributed the naira’s sudden loss of value  in virtually all segments of the foreign exchange market to the heat of falling crude oil prices. 

The naira suffered its biggest daily depreciation of N8.5 against the USdollar in the parallel market since 2017, as the exchange rate rose sharply to N367 per dollar from N358.5.

At the Investors & Exporters (I&E) window, the exchange rate jumped to N368.33 per dollar from N366.75, losing N1.58, the biggest daily depreciation since 2017, when the window was introduced. Market operators said the development was triggered by sudden jump in dollar demand as many currency traders anticipate foreign exchange scarcity due to low inflow from crude oil sales in the wake of the Coronavirus outbreak across the world. These, they believe, would lead to eventual devaluation of the naira by the Central Bank of Nigeria as it did in 2015.

Commenting on the naira depreciation, Alhaji Aminu Gwadabe, President of Association  of Bureaux de Change Operators  of Nigeria (ABCON) attributed it to panic buying by speculators

“The depreciation of the naira in the parallel market came as a surprise because the Central Bank of Nigeria (CBN) has been selling dollars to BDCs. They still sold dollars to us today”, said Aminu Gwadabe, President, Association of Bureaux De Change Operators of Nigeria (ABCON).

According to him, the currency has come down to N3 75(per dollar). The increase was due to the Black Monday when the crude oil price fell below $30 per barrel due to Coronavirus.  He said  there was a lot of speculations and hoarding at the foreign exchange (forex) market. “People prefer to hoard dollars, thinking that there would  be devaluation. That was just the scenario of what is happening”.

However, Gwadebe said the Central Bank of Nigeria (CBN) is disputing that fact, saying there is no plan for any devaluation at the moment and that they are going to continue to increase their supply (of Dollar); despite what happened.,

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He the CBN had assured it would  not reduce its supply, especially to the BDCs, warning it would deal with whosoever was caught (hoarding dollars) including revoking of its business licence and prosecution.

In his reaction, Managing Director, Cowry Assets Limited, Mr. Johnson Chukwu, said the free fall of the naira witnessed yesterday will lead to increase in inflation rate, thus worsening the economic situations of Nigerians and with low purchasing power.

He equally said the situation will lead to an erosion of the gains that may have been recorded by workers in the new minimum wage, as the increase would have amounted to nothing.

Chukwu said the scramble for dollars as a result of panic buying on the part of speculators, will further lead to a drastic fall in the country’s foreign reserves.

He argued that with all the attendant effects listed above, the Central Bank of Nigeria (CBN) would eventually be forced to devalue the currency.

He argued that the development equally portends grave danger for the $22.7 billion loan recently approved by the Senate as it would come with a high premium and will not be able to sufficiently moderate inflation in reserve.

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Meanwhile the Central Bank of Nigeria (CBN) yesterday ruled out the possibility  of devaluation of the naira saying that current market fundamentals do not support such a measure.

The bank in a statement signed by its Director of Corporate Communications Mr Isaac Okoroafor, expressed displeasure over rumours and speculative activities of unscrupulous players in the foreign exchange market, borne out of the impression that the CBN is on the verge of devaluing the naira.

Okoroafor said that such rumours were false, unwarranted and calculated to serve the dubious and selfish ends of those peddling them.

The statement read in part “We therefore wish to state as follows:

We have begun a robust and coordinated investigation in collaboration with the Nigerian Financial Intelligence Unit (NFIU) and related agencies to uncover the unscrupulous persons and FX dealers who are creating this panic, and the full weight of our rules and regulations will be meted out to them, including, but not limited to, being charged for economic sabotage;

For nearly four years, the CBN has successfully maintained relative stability in all segments of the foreign exchange market, which has enabled investors, households and other economic agents to plan and to conduct their genuine foreign exchange transactions with relative ease;

The introduction of several foreign exchange management measures side-by-side with complementary interventions in food production and manufacturing has drastically reduced food importation, which hitherto constituted a large chunk of the pressure on the foreign exchange market;

Although the outbreak of the Coronavirus led to global economic slowdown, fall in the price of crude oil, and less inflow of dollars into Nigeria, the associated public health concerns have also led to factory closures in China, substantial drop in imports, widespread travel restrictions around the world, and cancellation of many conferences, sporting events, business travels, and FX orders;

The CBN said the size of Nigeria’s foreign exchange reserves remains robust and comfortable, given the current realities of Nigeria’s genuine and legitimate FX demand. As such, the CBN remains able and willing to meet all genuine demand for foreign exchange for legitimate transactions; and

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“For the avoidance of doubt, the CBN is also working with the fiscal authorities to properly and accurately dimension the immediate and expected impacts of the Coronavirus in order to respond comprehensively and at the same time, ensure a sound and stable financial system conducive for job creation and inclusive growth.

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