The Central Bank of Nigeria (CBN) is moving quickly to revive the moribund interbank foreign exchange (FX) market as well as close the widening gap between the official market rate at N310/$ and parallel market rate of N520/$.
Investors and economists last night attribute the worsening dollar scarcity on a lack of market transparency.
This has resulted in acute shortage of dollars that has continued to threaten the market with its attendant volatility.
However market information on the allocation of the $1 million to for the effective implementation of the new policy will be available tomorrow.
However Johnson Chukwu, managing director/CEO, Cowry Asset Management limited said last night that the money will not be sufficient to clear the demand for school fees and others for now.
Friday Ameh, energy analyst said last night that investors are becoming wearied of policy inconsistency of the CBN.
“We have huge backlog of fx demand unmet as well as LCs that have not been settled. But CBN seems overwhelmed by the magnitude of the problems which are in the first case due to the poor management of the situation,” Ameh said
The CBN has also decided to significantly reduce the tenor of its forward sales from the current maximum cycle of 180 days, to no more than 60 days from the date of transaction.
The apex bank also directed all banks to open FX retail outlets at major airports, as soon as logistics permit.
Meanwhile, the naira hit a fresh low of N520 versus the greenback on the black market yesterday, as retail currency traders said the new Central Bank of Nigeria (CBN) decision to sell dollars to Bureaux de Change (BDC) operators through commercial banks, was being studied.
In a circular released today and signed by the acting director, corporate communications, Isaac Okorafor, the CBN reveals its intention to “increase efficiency of the FX Market,” by immediately beginning to implement its articulated programme to clear all the unfilled orders in the interbank FX market; and no longer imposing allocation/utilisation rules on commercial banks; despite giving strong priority in provision of FX to the manufacturing sector.
The CBN will implement an effective intervention programme to support the inter-bank market to ensure adequate liquidity necessary to deliver an efficient FX market; advise FMDQ to activate its FX Order-Book systems as soon as possible and also accelerate the on-boarding of FX clients on the FX Relationship Systems to ensure total transparency of the FX market.
“Given the CBN’s objective to continuously and vigorously pursue a transparent, liquid, and efficient FX Market, the Bank reiterates it would neither tolerate unscrupulous actions, nor hesitate to bring serious sanctions on offenders, be they banks or their staff.
“The Bank therefore encourages market participants to assist in ensuring that these new measures engender the preservation of our external reserves, stability of our financial system, and growth of our economy to the benefit of all Nigerians,” Okorafor said in the statement.
The CBN removed a currency peg in June, 2016 but continued to intervene to keep the naira at about N315 against the U.S. dollar, compared with above N500 on the parallel market.
Trading volumes have increased since then but remain low at $8.4 billion in December, compared with $24 billion in December 2014, according to Fitch Ratings.
CBN gross dollar reserves have jumped by about $5 billion in three monthsto $29.051 billion as at February 16, 2017 as oil prices and production volumes inch up in recent months.
This has given the apex bank the necessary firepower and confidence to revive the interbank FX market.
The CBN is also providing direct additional funding to banks to meet the needs of Nigerians for Personal and Business Travel, Medical needs, and School fees, effective immediately.
All banks would receive amounts commensurate with their demand per week, which would be sold to customers who meet usual basic documentary requirements.
The CBN began its intervention by selling $1 million weekly to each of the country’s 21 commercial lenders at a rate of N375 per dollar to clear a backlog of demand for retail users and try to narrow the premium between the official and black market rates.
On Friday, the naira was quoted at N516 on the black market. On the official market, the naira was quoted at N305.50.
Aminu Gwadabe, acting president, Association of Bureau De Change Association of Nigeria ABCON), said the new BDC window at N375/$ may inject further liquidity and reduce the continued onslaught on the naira as a result of fear and lack of confidence in the unofficial market.
However, he said the new rates of 375/$ to end users by banks has further created another price discrimination by CBN.
“As the BDCs buy the proceeds of International Money Transfer Operators (IMTOs) at N381/$ and sell at N399/$, the impact will be gradual and largely dependent on how banks will want to cooperate with CBN in this regard,” Gwadabe said.
“The fear and uncertainty in the market is not making any policy to work. But there is hope that we will begin to see more dollars coming soon to the critical retail segment of the market”, Gwadabe said
Retail currency users buy dollars from licensed BDC’s, however, due to the CBN’s inability to meet dollar demand, BDCs have tended to source dollars from private sources and resell at a much higher margin, fuelling the black market.
Currency traders said Monday that commercial lenders have compiled a list of bids from customers awaiting dollars.
The Central Bank has been selling dollars at N305 per dollar to clear a backlog of demand from manufacturing, agriculture and airline companies, hoping also to help drag Nigeria out of its worst recession in 25 years, triggered by low oil prices.