The nation’s currency, the naira, may stabilise at the inter-bank foreign exchange market this week following the latest policy of the Central Bank of Nigeria (CBN) which has helped reduce speculative demand. The CBN last week announced the closure of the Retail Dutch Auction System (RDAS) and directed that all demand for foreign exchange be channelled through the inter-bank foreign exchange market. “We advise CBN to work towards the minimisation of physical foreign currencies transactions within the country while international transactions should be done electronically through e- payments or banks’ transfers.
This will further reduce speculative demands”, analysts at Cowry Asset Management Limited said in a report. The CBN now sets the clearing rates for transactions at the inter-bank market contrary to predetermined band rate of USD168 +/-5 to the dollar at the RDAS. The closure of the official RDAS and WDAS windows would lead to higher input cost for some real sector operators who have been accessing funds from the official windows. On the positive side the use of interbank rates to translate crude oil sales receipts will boost the naira amount of funds shared by the three tiers of government and consequently improve the financial capacity of states to meet the salaries of their employees, though the real value of such salaries would have been eroded by inflation.
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In another circular re- leased on Thursday, February 19, the CBN directed importers to repatriate their dollar earnings within 90 days (for oil exports) and 180 days (for non-oil exports). Defaulters risk being barred from all segments of the foreign ex- change market. In response to these policies, the Nigerian Interbank Foreign Exchange Rate (now CBN’s clearing rate) stood at N198/USD as at Fri- day. At the bureau de change segment and parallel market, the naira lost 2.37% to close at N216/USD (from N211/USD) and N217/USD (from N212/ USD), respectively. “We view the ‘tacit’ devaluation of the currency by the CBN as a positive development. Whilst this move may suggest that the CBN has jettisoned the managed floating exchange rate regime, we note that the new system still appears to be linkable to a ‘guided floating exchange rate’ as prices will tend to be more market driven. The policy will potentially reduce speculative activities, while CBN ad-hoc interventions will keep naira volatility in check. We expect the currency to continue to trade within the range of N195.00-N200.00/ US$1.00 at the interbank”, analysts at Afrinvest said. However, the CBN sold US$390.01 million of the US$400.0 million offered at the bi-weekly RDAS session held on Monday and Wednesday at the marginal rates of N168.0/US$1.00. The central bank’s direct interventions at the inter-bank market to sup- ply legitimate dollar demand submitted by individual banks and the concurrent ban placed on trading of intervention fund with other banks to curb speculation led naira to record some gains at the beginning of the week. The exchange rate moderated to close at N198.05/ US$1.00 by mid-week at the interbank, a N3.38 appreciation relative to last Friday’s close.
