New Telegraph

CBN injects $1.54bn into forex markets in one month

NAFEX = $435

SMIS = $407

SMEs = $400

BDCs = $295m

 

The Central Bank of Nigeria (CBN) sold a total of $1.54 billion across the various segments of the country’s foreign exchange markets  the month of September, according to a report by Nova Merchant Bank.

 

Titled, “October 2020 Economic Insight: CBN partially relaxed lockdown at the IEW and BDC segments,” the report, which  was obtained by New Telegraph at the weekend, showed that the apex bank, last month, intervened at the Investors and Exporters’ forex window (I&E), also known as the Nigerian Autonomous Foreign Exchange Fixing (NAFEX), to the tune of $435 million  and sold $295 million to Bureaux De Change (BDCs).

 

 

In addition, the report indicated that during the period, the regulator also sold a total of $400 million to the Small and Medium  Enterprises (SMEs), Invisibles and Secondary Market Intervention Sales (SMIS) retail and wholesale- segments, even as its non-auction sales increased to $407 million. This means that the CBN sold a total of $1.54 billion across the segments in September.

 

Significantly, the report pointed out that despite CBN’s forex sales during the period increasing by 149 per cent over the amount it sold in the previous month, the gross external reserves increased by $61 million in September compared with a depletion of $215 million in August.

 

The report stated: “The apex bank partially relaxed lockdown on FX sales at the IEW and to BDC operators in September. The apex intervened at the IEW to the tune of $435 million, with estimated sales to BDCs of $295 million. Following the resumption of sales, the BDC-Interbank premium narrowed to 19% (from 24% at the end of August) with the parallel market exchange rate appreciating to N455.9/$ (average for September from N472.4/$ in August).

 

“Over Q3 2020, foreign inflows summed to $272 million, while outflows summed to $1.94 billion. Local FX supply (excluding CBN) provided much of the support over Q3, with cumulative FX supply by Exporters/Importers, Individuals, and Non-bank FIs of $1.23 billion.”

 

It further said: “In the month of September, CBN sales to the SMEs, Invisibles and SMIS (retail and wholesale) segments totalled $400 million compared to $457 million in August. Non-auction sales increased to $407 million, compared to $143 million in August. Foreign inflow was just $90 million, compared to $65 million in August, while local supplies (ex-CBN) increased to $412 million (August: $364 million), following higher FCY sales by exporters/ importers.

 

“Despite CBN sales across segments increasing 149% MoM to $1.54 billion relative to the level of inflows (both oil and FPI), the gross external reserves increased by $61 million (August depletion $215 million) in the month of September to adjusted level of $35.30 billion following inflow of some official funds.”

 

With its foreign exchange reserves significantly impacted by the slump in the price of oil (the commodity that accounts for over 90 per cent of Nigeria’s export earnings) as well as the effects of the coronavirus crisis, the CBN, since the beginning of the year, has had to introduce a number of measures to conserve the reserves in order to be able to adequately meet forex demand. For instance, on July, 13, the regulator directed banks to stop processing ‘Forms M’ for the importation of maize in order to boost local production.

 

The move meant that the CBN had added maize to its list of items and services that are banned from accessing the country’s official foreign exchange market. The CBN had also, on February 11, restricted access to official forex for milk and other dairy products importation, to only six companies.

 

Apart from placing a forex ban on selected items and services, the CBN has also, in the last nine months, taken steps to unify the country’s multiple exchange rates, a key recommendation that international financial institutions, such as the World Bank and the International Monetary Fund (IMF), say will attract foreign inflows into Nigeria. Indeed, the CBN Governor, Mr. Godwin Emefiele, told an investor’s conference in May that the apex bank: “Will continue to pursue unification around the NAFEX Market.” Thus, the banking watchdog, on July 3, adjusted the naira’s rate from N360/$1 to N380/$1 at the SMIS.

 

Similarly, on July 7, the regulator adjusted the exchange rate at the I&E window, by 5.54 per cent to N381 per dollar from N361/$. Furthermore, in announcing the resumption of dollar sales to BDCs in late August, which had been suspended in March due to coronavirus restrictions, the CBN unveiled what it described as, “applicable exchange rate for the disbursement of proceeds of International Money Transfer Service Operations (IMTOs) for the period Monday, August 31 to Friday, September 4, 2020.”

 

Although the naira has been largely stable at N386 per dollar against the dollar at the I&E forex window in recent weeks, it has been unstable against the greenback on the parallel market, fluctuating between N457/$1 and N467/$1 in recent weeks.

 

Analysts have predicted that the local currency will continue to be under pressure on the parallel market, due to the backlog of unsatisfied demand for dollars, coupled with rising demand for forex, triggered by the increase in economic activities in the wake of the gradual lifting of coronavirus restrictions.

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