Technical Devaluation sets in as scarcity prevails to widen Exchange rate gap

Proshare

Thursday, February 19, 2015 5.53PM / Research

 

A review of events in the market today, concerning the activities at the foreign exchange market confirmed the following key developments:

 

        Following yesterday’s official closure of the Retail Dutch Auction System (rDAS) by the CBN, leaving buyers with just the interbank and BDC platforms to buy from, the parallel  market  has reacted accordingly by re-pricing the naira from N215/$1 to N220/$1, a de-facto devaluation of sort.

         Scarcity of dollar and pounds continue to prevail as the CBN will only make foreign exchange available for genuine/legitimate demands.

         The interbank market closed today at N199.00 to USD1

         There is still a huge arbitrage of N31.00 between interbank rate of N199 and the official rate of N168 to a dollar.

 

Today, the naira exchanged for N220 to a dollar in the parallel market as forex scarcity continues amid strong demand while the pounds sterling exchange at around N330 for one pound.

 

EXCHANGE RATE

Our daily exchange rate monitor of the performance of the naira against the dollar following the devaluation of the Nigerian currency in November 2014 continues to highlight how the naira has fared against the dollar over the months.

 

Today, the naira traded at N220 to a dollar. The value of the naira has depreciated significantly mainly because of the dwindling oil revenue from falling global oil prices and speculative and spurious demands for the dollar. Following the initial devaluation of the naira by 8% and the falling value of the naira, the CBN has technically devalued the naira again by closing the rDAS window and restricting dollar sales to only genuine and legitimate demands


Source: Fieldwork


The value of the naira has since the initial CBN devaluation traded between N173 and N215 to a dollar before recording a new low of N220/US$1 today. The graph above shows in pictorial form the volatility of the naira against the dollar in the black market for the last 3weeks as it compares with the official rate, which has remained stable at the official rate of N168/$1.

 

OIL PRICE

Oil price has also witnessed heavy decline since the last quarter of 2014. The commodity price recorded a loss of -5.5%, when compared to yesterday’s price of $61.19, to close at $57.83 today, February 19th, 2015. The initial huge decline in oil price caused the Federal Government of Nigeria to review downwards its benchmark oil price for 2015 budget.

 

Today’s Brent crude price is still below the $65 benchmark oil price for the yet-to-be-passed 2015 budget. You would recall that the Federal government of Nigeria initially set the benchmark price for 2015 budget at $78 before the first downward review to $73 of which circumstances forced it to review further down to $65 per barrel.



Today, the price of Brent Crude oil (Nigeria’s crude oil type) was $57.83 while the other variant of crude (WTI) traded at $52.14 per barrel the previous day.

 

To View Commodity Prices Click Here.. 


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