Nigeria reacts positively to a forex crisis of confidence and liquidity

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Monday, February 27, 2017 5:15 PM/ FDC

Economic Deterioration 2014 – 16

Currency Misalignment


·         Fair value: N340  
·         Market premium= 40% of N340  
·         Parallel market should not trade above market premium + fair value  
·         i.e approx. N476/$ - target rate for parallel market

Multiple Exchange Rates


Announces new policy on Forex

PTA, medical and school fees to be met at 20% above the IFEM rate i.e N366/$

To reduce the tenor of forward sales from 180 days to 60 days

Boost FX retail outlets at major airports i.e Lagos, Abuja Increase 

Increase confidence and efficiency of the FX market

Impact of Policy


Policy partially addresses liquidity problem (#$104m pm) 

Does not resolve the confidence crisis in the market 

CBN’s aggregate supply to the market 

Invisibles= $104m 


Σ = $904m

Impact of Policy – According to RENCAP


An improvement in FX availability 

A relatively more flexible FX rate


FX policy remains interventionist. 

No change in the policy of IOCs selling FX to the CBN

CBN remains the biggest FX supplier on the IFEM.

FX market remains fragmented

No mention of restoring the two-way quote system

CBN continues operating fixed FX rate, and simply moves to a new peg.

Impact on Petrol Subsidy… RENCAP

The pump price for a litre of petrol is currently NGN145/litre
Given that the petroleum marketers are currently getting dollars at an FX rate of NGN305/$1

This means NNPC is paying a subsidy of NGN27/l

The NGN145/l petrol price was set assuming the FX rate would not go beyond NGN297/$1.

Total cost for marketers at various FX rates using oil price of $55/bl, NGN/l

CBN Announces new policy on Forex

Gross external reserves approx. $29bn

Net external reserves import cover approx. 6 months 

Short term Outlook

Parallel market will appreciate towards N460/$ before bouncing back to N480/$ in a cobweb movement

As BDCs square their positions and cut losses

Demand will grow in the IFEM

Pressure for the CBN to abandon the N305/$ fictional rate will increase

IFEM spot rate will inch up to N320/$

The beginning of a convergence process

External reserves depletion to approx. $27bn in March

Pressure to allow the 41 items to become eligible will intensify

Related News

1.       Dollar Set To Crash Further as CBN Releases Additional $180m to Banks
2.      CBN Special Wholesale Intervention 60 Days Forward
3.      Guidelines for the Operationalization of the CBN Policy on PTA and School Fees.
4.      CBN Releases New Policy Actions in the Foreign Exchange Market
5.      FOREX Utilization: CBN Boosts Manufacturing, Agricultures, Others
6.      CBN makes further clarification on FOREX sale
7.      Drawbacks of Capital Control Measures Under the Proposed Forex Amendment Bill
8.     CBN’s $1.07bn Forex Utilization Report November 2016
9.      CBN clarifies alleged wrong FOREX purchase figures
10.  Nigeria’s Current Economic Situation: Our Case – CBN

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