Indications have emerged that Nigeria’s foreign exchange market is under severe pressure, leading to a significant depreciation of the local currency, Naira, in all market segments.
This occurs when the Central Bank of Nigeria (CBN), indicated that it would increase about N513 billion with sales of Nigeria’s Treasury Bills, NTB, in the second quarter of 2020.
Yesterday, naira suffered its biggest daily depreciation of N8.5 against the US dollar in the parallel market since 2017, with the exchange rate rising sharply to N367 per dollar, compared to N358.5.
In the Investors and Exporters window, the rate of exchange jumped to N368.33 per dollar, from N366.75, thereby losing N1.58, which is the biggest daily depreciation since 2017, when the window was introduced.
Market traders said the development was triggered by a sudden jump in demand in dollars, as many traders anticipate the shortage of exchange that is expected to arise from the fall in the price of oil, which will mean a huge drop in the price of oil likewise foreign exchange into the economy amid the persistent fall in the country’s foreign reserves.
They believe that this would lead to an eventual devaluation of the naira. Meanwhile, Brent Crude fell 3.4 percent to $ 35.95, while WTI Crude fell 3.26 percent to $ 33.24.
Bonny light was sold for $ 36.74, which showed a reduction of 1.29%. Last Friday, Bonny Light was sold for $ 46.27 a barrel, while on Monday it was sold for $ 45.27 a barrel.
In addition, it had a downward trend on Tuesday when it sold for $ 37.22 and fell to $ 36.74 yesterday. “The depreciation of naira in the black market is a surprise, because the Central Bank of Nigeria (CBN) is selling dollars to the BDCs.
President of the Association of Bureaux De Change Operators of Nigeria Aminu Gwadabe, (ABCON) said in his words “They still sold dollars to us today”. Meanwhile, the lead bank announced that its NTB issuance program for the second quarter would include N94.245 billion in 91-day notes, N86.182 billion in 182-day notes and N332.352 billion in 364-day notes.
According to the CBN, the NTBs is a rollover of same amount of bills that will mature during the period.
The CBN sells two different types of Treasury bills, namely NTB and OMO (Open Market Operation). NTB is usually issued to borrow from the public on behalf of the Federal Government, while OMO (Open Market Operations) accounts are issued to absorb excess cash from the system.
In the past year, the lead bank has banned local investors from the OMO auction, restricting participation to banks and foreign portfolio investors (FPIs).
The move triggered a huge excess demand for NTBs, resulting in a drop in instrument yields, with NTB yields from 364 days falling to about five percent last week, from about 15 percent in December 2019.