After a two-day meeting, the Federal Open Market Committee (FOMC) of the US Federal Reserve Bank raised its benchmark interest rate by 25 basis points to 0.25 per cent to 0.50 per cent, a move certain to put more pressure on the naira, which on Wednesday plunged to a new low at the retail segment of the foreign exchange market to N270 to the US dollar.
Speaking on the first rate hike in almost a decade, the US Fed Chairman, Janet Yellen, said that the increase was a vote of confidence in the US economy, but stressed that the pace of interest rate hikes would be gradual.
But whilst US markets may have hailed the decision and saw the Dow Jones, S&P 500 and Nasdaq initially falter, but later rallied to news on the rate hike, the same could not be said of the Nigerian economy and the local currency, which have been hit by dwindling revenue from low oil prices.
Oil revenue accounts for 90 per cent of Nigeria’s foreign exchange and 70 per cent of total revenue
Low oil prices and forex currency curbs introduced by the Central Bank of Nigeria (CBN) saw the naira fall yesterday to a new low of N270 to the dollar on the unofficial market after the central bank rationed dollar supplies for the third week in a row, traders said.
The CBN cut the amount it sold to each of the 2,270 retail bureau de change (BDC) operators that participated in yesterday’s weekly sale to $10,000, down from the $30,000 it sold last week to each of the BDCs, Aminu Gwadabe, the head of the BDC association, told Reuters. It offered $84.5 million at a similar sale two weeks ago.
Businesses are struggling to access dollars as the central bank rations the greenback to save reserves.
“There is dollar scarcity right now… the central bank has shrunk supplies despite increasing the number of BDCs at its window,” Gwadabe said.
Commenting on the US rate hike, the Managing Director of Financial Derivatives Company, Mr. Bismark Rewane, said: “It was not surprising; it was expected. This will put more pressure on the CBN to devalue the naira because the rate hike has effectively strengthened the US dollar.
“And with the price of oil at $37 a barrel, there is a need for an adjustment of the local currency like yesterday. It can no longer be avoided because commodity prices are certain to plummet further, so Nigeria must face the reality of its situation. We can no longer avoid a devaluation.”
He noted that with Nigeria’s trade and investment flows in negative territories, “it has become imperative that if the country must attract investors, we must adjust the naira to a realistic level”.
“Today (yesterday) the naira fell to N271 to the dollar in the parallel market, thus widening the gap between the interbank rate and informal market. This is not sustainable, so the CBN and government must have a rethink of its foreign exchange policy immediately,” he added.
However, the Director, Monetary Policy Department of the CBN, Mr. Moses Tule, said last night that the naira was under pressure because of speculators, whom he faulted for taking positions on the naira which could them to profiteering from currency trading.
A statement from the CBN quoted Tule as making the remark on a television programme in Abuja.
He pointed out that currency speculators were determined to put severe pressure on the central bank based on the expectation that it would be forced to devalue the naira.
According to him, the CBN has a responsibility to the economy and would not fold its arms while economic predators feast on the nation’s commonwealth through arbitrage.
While maintaining that the only rate in the currency market was the interbank rate of N196.47/$1, he wondered why indigenous operators in the BDC segment of the market had chosen to make supernormal profits at the expense of customers in genuine need of the currency.
He observed that while international operators such as Travelex traded at not more than N7 above the rate, indigenous operators preferred to make profits as high as N50.
“We know what the fundamentals of this (Nigerian) economy are and we (CBN) will continue to take the right economic decision on what to do and not when people sitting out there speculating on the currency think the naira should be devalued so that they could make profit out of it,” he said.
“No country quotes its exchange rate with reference to the BDCs’ rates. The currency has a reference rate and that is the interbank exchange rate,” he declared.
Tule asked Nigerians to be more patriotic in their dealings rather than engage in activities capable of undermining the integrity and value of the naira, adding that the media has a role to play in assisting the CBN to curb speculative attacks on the naira.
A former deputy governor of the CBN, Mr. Tunde Lemo, who also featured on the programme, urged Nigerians to change their lifestyles to support the economy, stressing that no developing economy leaves the exchange rate determination free to market forces.
The central bank this month asked all BDC operators to submit accounts showing their dollar usage at the start of each week before they can access future sales, a move traders say was aimed at curbing speculation.
Last Friday, the central bank issued a circular which, among other things, invited retail money exchange agents to also consider obtaining dollars from private sources to fund personal and business travel, its latest attempt to conserve its dwindling reserves.
But it added that individuals wishing to sell more than $10,000 would be required to disclose the source of the funds, tightening the rules around BDC operations in an economy already suffering from a sharp fall in oil prices since mid-2014.
The CBN, which has been unrelenting in its bid to conserve the nation’s foreign exchange reserves, may also compel BDCs to start issuing dollar denominated pre-paid cards as it seeks to reduce the volume of dollar cash sales to the parallel market.
Meanwhile, the Ministry of Budget and National Planning on Monday concluded technical sessions on the 2016 budget with the various ministries, departments and agencies (MDAs) of the federal government.
The technical sessions, which started last week, were at the behest of the Budget Ministry and provided an opportunity for the respective MDAs to fine-tune their proposals with the guidance of technical experts responsible for various sector areas in the ministry.
THISDAY gathered from sources privy to the budget meetings that the sessions offered an opportunity for the MDAs to lay their proposals before technical experts, who perused them and made observations.
Such observations included prioritising projects submitted by the MDAs to align with the policy thrust and the zero-based budgeting of the Buhari administration.
During the meetings, while projects that met the policy direction of the administration were prioritised, others were downplayed in the context of dwindling revenues.
THISDAY sources disclosed that observations and alterations made in the MDAs’ original proposals are now being effected with a view to producing final budget proposal for presentation to the National Assembly.
A top government source told THISDAY that in the next few days, the 2015 budget proposals would be presented to President Muhammadu Buhari.
According to him, the president, on receiving the 2016 budget proposal, is expected to summon a meeting of the Federal Executive Council (FEC) to deliberate on the budget before presenting same to the National Assembly.
FEC meetings, under the incumbent administration, are not held weekly as was the case with previous governments, but are held at the instance of the president when he deems fit.
When asked if there was any likelihood that the budget proposals will be presented to the National Assembly before the end of the year, the source said: “The major work on the budget has been done. What is left is the final clean copy to be presented to Mr. President.”
He expressed optimism that the budget proposal would be laid before the National Assembly before the end of the year.
The federal legislature confirmed this week that Buhari would present the 2016 budget next Tuesday.
Buhari last week presented the 2016-2018 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) to the parliament.
The MTEF/FSP is proposing a N6 trillion budget for 2016 with the oil benchmark fixed at $38 per barrel while oil output was put at 2.2 million barrels per day (mbpd).