Posted by By Ayo Olesin and Clara Nwachukwu on
The Nigeria Inter-Bank Foreign Exchange market has effectively shut down with most authorised dealers suspending trading due to an acute shortage of dollar supplies.
The Nigeria Inter-Bank Foreign Exchange market has effectively shut down with most authorised dealers suspending trading due to an acute shortage of dollar supplies.
The naira had fallen to N129 to a dollar on Tuesday on NIFEX, down from N120, the biggest single day loss in three years, as the CBN held back supplies from the bi-weekly Wholesale Dutch Auction System and allowed the naira to fall sharply against the United States' currency the last few days.
Banks said no spreads were being quoted on Wednesday as the market waited for clarity on the central bank's foreign exchange policy, and as dollar supply all but dried up, amid strong demand from banks.
The CBN had allowed the naira, which had stabilised against the dollar for months, to depreciate at Monday's WDAS session, as it only sold only $100m against demand of about $2bn, leaving banks to seek dollars from other sources and exerted downward pressure of the naira, which dipped to N118.32 per dollar compared with N116.62 a week ago.
On Wednesday, authorised dealers said the CBN sold only $180m though demand was 10 times higher, forcing the naira to fall further to N127 per dollar. There will be no auction on Monday because of the Eid el Kabir holidays.
Dealers at NIFEX said banks refused to quote any spreads to avoid settlement defaults, as there were no dollars to trade, which heightening fears that the Federal Government might have taken a decision to allow the naira fall to save the dollar due to a weakening of the nation's fiscal position as a result of falling oil prices.
Brent crude fell to $44 per barrel, below the 2009 budget benchmark of $45 per barrel in Wednesday's trading at the International Petroleum Exchange in London
Dealers said dollar demand was being driven by importers ahead of the Christmas trading season as well as by portfolio investors who have been taking money out of Nigeria as the global credit crisis dampened appetite for risk.
The dollar outflows has also been fuelled by local banks, businesses and individuals, who are worried by the long-term impact of falling oil prices on Nigeria's economy and the strength of its currency, and who are now taking dollar positions
Analysts have said a depreciation of the naira might be necessary but that it needs to be carefully managed.
A shut down of the market means foreign investors in anything from equities and bonds to private equity funds are unable to retrieve US dollars, according to Reuters.
Meanwhile, the Department of Petroleum Resources has said the daily production target of 2.292million barrels on which the 2009 budget estimations is based is achievable.
However, the oil and gas industry regulator noted that achieving the target is based on three major factors - resolution of the Niger Delta crises, Organisation of Petroleum Exporting Countries' quota and funding.
Reacting to questions during the third Quarter Media Briefing in Lagos on Wednesday, the Assistant Director, Gas, Mr. Billy Agha, told our correspondent that barring these factors, Nigeria was capable of meeting the production target as national capacity was currently around 3.2million bpd.
He said, "If everything goes well, we can meet the target, because a number of fields will come on stream in 2009. If these issues are tackled properly, we could even do up to 4.4million bpd."
Agha noted that production quotas are based on three variables - producibility, technically allowable and commercially allowable - adding that as a member of the OPEC, Nigeria's quota was based on commercially allowable by the group.
The Federal Government presented a budget of N2.87tn for the 2009 fiscal year, based on a budget benchmark of $45/bbl and production target of 2.292million bpd to finance the budget.
However, some analysts expressed doubts about government's ability to meet its revenue targets based on the expected crude production.
Their reservations were based on the current global melt down, which had affected the demand for oil, particularly among major consuming nations like the United States, leading to a continuous slide in oil prices at the international market.
In a bid to shore up prices to a comfortable level that would aid additional investments OPEC embarked on output cuts, with another 2million bpd cut expected during its December 17, meeting in Algeria.
OPEC at its quarterly meeting in Vienna, Austria, in September, had withdrawn 1.5million bpd, which had reduced Nigeria 's output by 113,000, to bring our daily quota to 1.8million bpd.
Aside from the international issues, the analysts argue that the unresolved issue of the Niger Delta could impede on the revenue and production targets, as more fields could be shut during the period.