Data suggests that the forex market is coming out of shock | The Guardian Nigeria News
Despite the noise caused by the latest variant of COVID-19, Omicron, which has raised further uncertainty, data and economists see near-term stability in the forex market.
Out of the panic that greeted the Bureau de Change (BDC) ‘freeze’, the black market rate has remained stable in recent weeks, trading around the $ 550 / $ band in recent days.
Hoarding and panic buying had taken hold of the market by the jugular, pushing up the level of illiquidity. As the crisis continued, the value of the naira against the benchmark currencies fell, with the dollar hitting new highs daily and approaching nearly N / $ 600.
The Central Bank of Nigeria (CBN) and some financial analysts called the panic transient, stressing that traders would go bankrupt when the new retail transaction model, which makes deposit banks (DMBs) the only outlets, went into bankruptcy. been perfected.
The CBN had also insisted that black market rates could not be mistaken for the true price of local currency, as the segment was unrecognized and extremely speculative. BDC operators have been ousted over allegations they were involved in extreme market manipulation and money laundering.
The results showed that the panic subsided, at least in the meantime. Traders also confirmed that liquidity has improved. The data also suggests that the monetary authority has more leeway to manage any shock.
For example, foreign exchange reserves have seen a modest increase in recent months. Earlier, the numbers fell, with crude reaching $ 33 billion in July before starting a gradual rebound.
Reserves have held steady increases since August, closing yesterday at $ 41.8 billion. Reserves have stabilized around $ 41 billion and $ 41.9 billion in the past five weeks.
The increase in reserves, David Adonri, an investment expert, told The Guardian yesterday, suggests short-term stability in the forex market and more room to deal with any increase in import bills.
“The market has recovered from the shock that followed the restriction of BDCs. The price appears to have reached equilibrium at N550 / $. If you also look at the foreign exchange reserve, it has been stable, which means that monetary policy has more leeway in its intervention in the market, ”said Adonri.
No doubt, the market is not out of the woods. The new variant of COVID-19 has only raised new tensions, putting more pressure on international oil and equity markets.
But Adonri said the global economy appears to have mastered the art of responding to COVID-19. He said the market has shown it can absorb the shock and may put panic behind it in the coming weeks.
But another expert and retired investment banker Victor Ogiemwonyi said the devastating new tension could test the market’s ability to continue weathering the storm. He admitted that the market was relatively stable and likely not going to rise in the near term.
He warned, however, that a reasonable drop in oil prices could upset current stability. The economist sees a comfort zone at $ 75 the price of a barrel of oil.
He noted: “There is a temporal respite. And that’s probably not going to increase given that it’s already December. It is also good that our reserve increases. Banks give money to those who already have it.
“Likewise, when your reserve level is comfortable, you can borrow in the international market. We just hope that the price of oil will not drop drastically. If oil prices continue to fall, there could be another crisis. “
Ogiemwonyi said there could be another crisis in the middle of next year when active partisan politics begins. Until then, he said, the current stability in the forex market appears to be sustainable.
There are four months of suspension of currency sales to BDCs and switch to DMBs. The move triggered a shock as banks struggled to adjust to their new responsibility.
By deciding to replace the BDCs, the umbrella bank believed it could leverage its regulatory framework to ensure compliance.
Unlike the case where the BDCs were in charge, anyone wishing to purchase foreign currency for a personal and business travel allowance (P / BTA) must provide the documents required by the CBN.
The number of BDCs, estimated at over 4,000, made effective monitoring difficult. On the other hand, there are fewer banks and already have a relationship with the umbrella bank.
BDCs were previously accused of profit when banks are expected to generate returns. The CBN had asked banks to put in place receiving agents and systems to ensure that foreign exchange was available to eligible buyers. The umbrella bank has also set up an office to receive complaints from end users.