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Central Bank of Nigeria (CBN) has said the $4 billion backlog of forex demand could be cleared in three to four weeks.
Godwin Emefiele, governor, CBN, said this in a letter to President Muhammadu Buhari, which was seen by Reuters. BusinessDay’s efforts to confirm this from the CBN was not successful as the telephone calls made to the corporate communications department did not go through.
Before the new forex policy by the CBN, Deposit Money Banks (DMBs) may have stopped issuance of Letters of Credit (LC) following the dearth of forex in the financial market, BusinessDay investigation reveals.
Adesoji Solanke, banking analyst at Renaissance Capital, had said the importers had struggled to access FX, as Nigerian banks used their FX liquidity to settle the correspondent banks (given the LCs are guarantees), in anticipation of the CBN providing liquidity.
“With the CBN maintaining the view that the backlog of FX demand is largely speculative, it has requested that the correspondent banks submit a list of outstanding obligations, although we understand it has been unable to fully meet this FX demand,” Solanke had said in a report.
The CBN said yesterday that the market-driven foreign currency trading would commence next week, abandoning the peg of N197 against the dollar that it had supported for 16 months.
Foreign investors and economists have called for months for devaluation as chronic foreign currency shortages choked economic growth and deterred investments.
Razia Khan, managing director, chief economist, Africa, Global Research, Standard Chartered Bank, said, “while the CBN’s apparent embrace of currency flexibility is positive, macroeconomic concerns are likely to persist.
“How Nigeria’s accumulated backlog of FX demand will be settled is not yet clear. The risk is that if all of this demand is brought to the newly established interbank market at the outset, the USD-NGN FX rate would come under significant pressure,” she said in an emailed note to BusinessDay.
By establishing guidelines for a futures market, Khan said the authorities might hope to settle some of this backlog gradually over time. With May inflation reaching 15.6 percent y/y, there is likely to be limited desire for further significant FX volatility, even as the CBN embraces currency flexibility.
However, naira yesterday appreciated in value against the US dollar after the CBN introduced a market-driven foreign exchange market.
Consequently, the naira strengthened by N10.00k, closing at N355/$, a 2.74 percent gain compared to N365/$ the previous day at the autonomous market. It also gained at the parallel market by N07.00k or 1.90 percent to close at N360/$ yesterday from N367/$ the previous day.
Emefiele said in a June 3 letter to Buhari – seen by Reuters – that the central bank hopes the naira will eventually trade at around 250 per dollar, a level the president has “approved”.
“I must assure Your Excellency that we are indeed reasonably optimistic that at some point the rate will settle around 250 naira,” Emefiele said in the letter.
