Optimism as New CBN Forex Policy Tumbles Dollar Rate on Parallel Market
The latest foreign exchange policy actions of the Central Bank of Nigeria, which avail the market
The new Central Bank of Nigeria directive, which abolished the foreign exchange preferential treatment it accorded the manufacturing sector, absorb retail forex sales for retail users and reduced the tenor of foreign exchange denominated transaction has expectedly begun to generate interests among operators in the economy and analysts alike. The move is aimed at easing access to foreign exchange by Nigerians as well as to foster a more efficient and competitive FX market, despite its decision to eliminate the preferential treatment, which required banks to allocate 60 per cent of FX purchases from all sources to the manufacturing sector.
Despite the elimination of the preferential FX allocation regime, the apex bank maintained that the provision of FX to the manufacturing sector would remain its strong priority. The assertion may soothe nerves amongst operators in the manufacturing sector whose major bane was inability to access FX for machinery and spare parts imports.
In fact, the CBN has provided direct additional funding to banks to meet the needs of Nigerians for Personal and Business Travel, Medical needs and School fees. The CBN expects such retail transactions to be settled at a rate not exceeding 20 per cent above the interbank market rate. The CBN has since embarked on special wholesale intervention forward sales in the interbank FX market. While it offered $500 million on Tuesday, the 23 banks were only able to buy $370, 810.79 to meet the visible and invisible requests of the customers. The bank had also sold $80 million to banks to meet the demands of their customers who had applied for FX for school fees, medicals, and business and basic travel allowances, out of the $125 million uncleared backlog for invisibles.
These are besides spot sales of $1.5 million to four banks and the offer of $41 million for sales out of which $35 million was taken up for the payment of school fees, medical bills and personal and business travel allowances. In all, the CBN had sold $491.8 million to commercial banks and authorised dealers in the market as at Tuesday.
Following the actions of the CBN, the exchange rate of the dollar to the naira continued to slide. In fact, the value of the national currency has been rising unabatedly since the announcement of the new policy. For instance, the dollar which was sold for N525 at the parallel market on Monday before the announcement, tumbled to N501/$1 on Wednesday. As at the close of business on Friday, it closed at N450/$, stronger than the N480 to the dollar from the previous day, amassing a gain of N75/$ after the announcement, thereby signalling renewed confidence in the forex market.
With the naira rapidly and daily gaining value, speculators, many of which have lost millions of naira, are now wary of buying dollars at higher rate.
The CBN in its determined effort to ensure that the naira continued to increase in value pumped dollar into the BDC market with each operator getting $8,000.
Nevertheless, THISDAY investigation revealed that a chunk of the parallel market operators are trying to slow down the fall of the dollar to mitigate the heavy losses they are currently suffering. It was gathered that many of them had bought huge volumes at over N500/$ with the thinking that the naira will continue to fall, only for CBN to dramatically intervene, leading to the naira gaining substantially against the dollar.
The new policy, though seen by a few as a policy reversal, couldn’t be coming at a better time. This is because the country’s foreign reserves has been on the increase lately, and it is still basking in the success of an oversubscribed $1 billion Eurobond. Following the success of the $1 billion Eurobond, the Acting President, Yemi Osinbajo, late Wednesday wrote to the National Assembly requesting permission to float another $500 million Eurobond.
The new policy is seen by many as fit for purpose. It has doused the criticisms that trailed the introduction of the preferential treatment when it was introduced last August, and vindicated those who described it as unsustainable. Observers opined that appreciation of the external reserves to US$29.1 billion has empowered the apex bank to intervene by making the market wet with the greenback and this time, the approach is more strategic and targeting.
In welcoming the new policy, one analyst stated that, “CBN initially progressed in error by implementing a selective policy in the first place. Because, how do we justify allocating 60 per cent of FX at the interbank market to a sector whose output has been falling over the years, contributing less than 10 per cent to our GDP? Even when
If the CBN can meet all demand for BTA, PTA, school fees, medical for the rest of the year, then they would have taken a small but significant amount of demand out of the parallel market. On the short term, it would bring down the parallel market rate