(CBN) Restricts Dollar Sales as Naira Sinks Below N170

•  It is tacit devaluation, says market analyst  • House to partner NSIA on oil price volatility, to return MTEF to executive for review

Muhammad Bello in Abuja and Obinna Chima with agency report
With the price of crude oil heading south and the country’s foreign reserves under pressure, the Central Bank of Nigeria (CBN) yesterday banned the sale of dollars at its Retail Dutch Auction System (RDAS) to importers of telecoms equipment, power generators and finished products.

Others affected by the ban include importers of electronics, finished products, invisible transactions business and information technology.
However, they can source their foreign exchange requirements from the interbank market and dealers.

Owing to the directive, the naira hit a new intra-day low in almost five years to N170.05 against the dollar yesterday, falling 1.87 per cent as the stock market continued to slide, Reuters reported.

In a circular titled, Exclusion of Some Transactions from the RDAS Window, posted on its website yesterday, the CBN said: “This is to inform all authorised dealers and the general public that in order to maintain the existing stability in the foreign exchange market and to further strengthen the various measures already initiated by the Central Bank of Nigeria, the importation of the following items shall henceforth be funded from the interbank foreign exchange market only: electronics, finished products, information technology, generators, telecommunications equipment, invisible transactions.”

In another circular, the central bank also said it had observed that banks and discount houses now have a preference for keeping their idle balances in its Standing Deposit Facility (SDF), thereby constraining the process of financial intermediation.

In order to encourage banks to increase lending to the productive sector of the economy, the regulator therefore announced a review on the guidelines for the operations of the SDF.

Specifically, it stated that “the remunerable daily placements by banks and discount houses at the SDF shall not exceed N7.5 billion. This shall be remunerated at the SDF rate of 10 per cent per annum.

“Any deposit by a bank and discount house in excess of N7.5 billion shall not be remunerated. These provisions are without prejudice to the subsisting Monetary Policy Rate (MPR) corridor.

“For the avoidance of doubt, the SDF remains as a monetary policy tool.”
According to the banking sector regulator, the MPR corridor remains +/- 200 basis points, that is 10 per cent per annum up to the limit of N7.5 billion.

Reacting to the CBN’s directive on the diversion of demand from CBN’s official foreign exchange window to the interbank market, a market analyst, who preferred not to be named, said: “The objective of this policy decision is to reduce pressure on foreign exchange reserves.

“In October, the CBN used 10 per cent of its foreign exchange reserves to intervene in the foreign exchange market. The last time the CBN used such a large share of foreign exchange reserves, in a month, to intervene was in the second half of 2011 and the central bank devalued the NGN by 5 per cent in November 2011.”

He said the policy decision confirmed that the CBN could not afford to keep intervening in the foreign exchange market to defend the official target exchange rate of NGN150 +/-3%, at the rate it has  been doing in recent weeks, especially in a depressed oil price environment.

“In enacting this policy, the CBN must have expected the interbank exchange rate to weaken. Which makes me wonder if this policy decision is a tacit devaluation” he said.

On the second directive by the central bank, which capped banks’ deposits that earn interest, he termed the move negative for the naira.
“I think this is negative for the naira, because it will result in banks diverting funds to treasury bills, which will put further downward pressure on yields and make them less attractive to foreign investors.”

The market analyst said the fact that both policy decisions were naira-negative, was evident from the depreciation of the naira to its weakest level, NGN171.82/$1, where after it retraced to about NGN170/$1.

“I believe the central bank must have anticipated further naira weakness, and widening in the gap between the official and interbank exchange.

“It is for this reason, I believe this may possibly be a tacit devaluation, or at least a precursor to an explicit one that may be announced at the November 25 MPC meeting,” he explained.

He added that the implication of the policies adopted by the CBN was that the rate of inflation would rise and could have adverse consequences on consumer stocks.

The stock market also remained bearish in yesterday’s trading, as major company stocks depreciated further, with Nestle leading the losers' chart with a N47.5 loss, to close at N883.

Forte Oil slumped from N208 to N194, while Dangote Cement, the biggest stock in the market, lost N10.4 to close the day at N198.
WAPCO fell to its lowest price of N80 in four years, after shedding N8.73, Nigeria Breweries also took a hit to N143.45 having lost N7.55, while Unilever closed at N29.80, slipping down from N31.35.

Market capitalisation sank to N11.425 trillion, losing N475 billion from N11.9 trillion at the close of trading the previous day.
In another development, the House of Representatives said yesterday that it would collaborate with the Nigeria Sovereign Investment Authority (NSIA), manager of the Sovereign Wealth Fund (SWF), in order to ensure stability of the Nigerian economy.

Chairman of the House Committee on Finance, Hon. Abdulmumini Jibrin stated this when his committee undertook an oversight visit to the NSIA, indicating that the House as a result of the emerging realities of the new oil price regime, was considering returning the Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) to the executive arm of government for review.

“The House is returning the MTEF to the executive arm of government so that the federal government will re-present it properly with attention to be paid to more savings so that agencies like the NSIA can be better supported,” the chairman said.

According to Jibrin, “Everything was good when crude was selling at $110. But not now when it is free falling. We want to see how the situation can be mitigated.

“We are aware that you are faced with two critical challenges of the legal instrument setting you (NSIA) up and your need for more funding,” he noted, pledging that his committee will mobilise the leadership and members of the lower chamber to smoothen out the fine points of the legal issue.”

He said more funds needed to be injected into the NSIA “so that there will be no panic when the price of crude oil again falls in the international market”.

In his submission, the Managing Director of the NSIA, Mr. Uche Orji, while appealing for more funds for the SWF, said: “There is little we can do about oil price fluctuations as an agency. But our survival depends on how much resources we have.

“The effect of oil price risk is not for the NSIA alone but for the whole country. Oil prices will be volatile at, say $100 per barrel, but it will also get to a point where new contracts will get out.

“This reduction will discourage others and at a point it will go away.”
The NSIA began operations two years ago with $1 billion, which it invested as follows: $200m in the Stabilisation Fund, representing 20 per cent of the SWF, while the Future Generation Fund and the Nigeria Infrastructure Fund received forty per cent each.

Out of the 18 areas it listed for investment, it has so far sunk funds into six: power, gas processing, motorways, health care, agriculture and real estate.