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…CBN sells $500m to banks
Tales of the demise of the naira may have been greatly exaggerated, as speculators reacted to the Central Bank of Nigeria (CBN) interventions in the foreign exchange (FX) market by selling dollars.
BusinessDay findings at the Murtala Muhammed International Airport, Ikeja , Lagos, and Festac area of the state, where black market dealers are operate, show that speculators are bringing out their dollars for sale, for fear of losing money.
Consequently, the naira on Tuesday appreciated by N17.00k to close at N503 per dollar, representing gains of 3.2 percent, compared to N520 to the US$ at which it closed the previous day at the parallel market.
The CBN announced a $500m intervention in the FX market, using Non-Deliverable Forward (NDF) contracts and stepped up dollar sales on the interbank currency market on Tuesday, a day after it began providing direct additional funding to banks to meet the FX needs of Nigerians for personal and business travel, medical needs, and school fees.
The $500m sale was in the form of a Special Wholesale Intervention Forward, not exceeding 60 days, according to a circular to all authorised dealers dated February 21, 2017, seen by BusinessDay.
Authorised dealers were to send their requests not exceeding 7.5 percent of the amount on offer, while banks shall not exceed their net trading position limits when bidding for the offer.
“While the plan to sell $500million in the interbank market may boost dollar liquidity, it does not completely hedge the participants from the imminent Foreign Exchange risk. Except the CBN gives priority to supply dollars to the forward contract participants, the naira will remain pressured, thus contradicting the CBN’s objective to close the gap between the official exchange rate and the parallel market,” said Ayodeji Ebo, Acting Managing Director, Afrinvest Securities Limited.
The CBN also sold a total of $6 million to commercial banks at N304.75 per dollar yesterday, FMDQ data showed, far more than its regular $1.5 million.
Nigeria’s Central Bank is trying to ease a severe FX shortage that has hit Africa’s largest economy as the collapse in oil prices take a toll on dollar earnings.
The local currency had depreciated by nearly three percent this week to N520 per dollar and 6.1 percent Year-To-Date (before the CBN interventions); in the parallel market. It however remained largely stable in the interbank market.
Kunle Ezun, treasurer at Ecobank said in a note, “While there was no change to exchange rate policy, the new circular in effect, will likely support naira appreciation at the parallel market, given the expected rise in FX liquidity that will be available to clear all the unfilled orders in the interbank FX market and other invisible transactions.”
At the money market, the overnight inter-bank rates, which is the rate at which banks lend to each other, rose to 132.00 percent, higher than 21.14 percent the previous day.
Also, the Open-Buy-Back increased from 20.50 percent on Monday, to 128.33 percent yesterday, after some lenders submitted their bids for the initial $500 million special intervention to the CBN.
The CBN in a bid to put a lid on abuse of the system put out some stringent measures for the $500m forwards sale, including banks not being allowed to allocate funds for customers letters of credit (LCs) that have already benefited from past sales, banks not allowed to have multiple bids, and successful banks accounts being debited immediately after the release of the intervention result at their quoted rates.
The CBN will also send examiners to the banks immediately after the intervention and any that fails to comply with the rules and other FOREX guidelines would be sanctioned.
“We are hopeful the CBN will improve overall dollar supply in the coming weeks, as well as clear pent up dollar demand to boost confidence and liquidity. In addition, the CBN should embraced the full implementation of the proposed managed float FX regime policy,” Ayodeji Ebo of Afrinvest said.
