CBN injects $1.14bn into forex market in two weeks


March 8, 2017 | 1:00 am
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… analysts bet on sustainability of supply

… external Reserves rises to $29.9bn

The Central Bank of Nigeria (CBN) has pumped in a total of $1,138 million into the foreign exchange market within weeks, a move geared towards ensuring stability of exchange rate.
The regulator on Tuesday also injected another sum of $100 million after it pumped $367.1 million the previous day into the interbank foreign exchange market.
Consequently, the local currency has experienced an upward swing appreciating to a record high of between (though fluctuating) N430 and N460 from a record low of N500 per dollar at the black market.
The CBN on February 20, 2017 introduced the wholesale intervention forward in the foreign exchange market, which guarantees supply to both small and the big end-users.
Isaac Okorafor, Acting Director, Corporate Communications, confirmed this to newsmen in Abuja, adding that the move by the Bank was to fund the commercial banks with enough forex to cater for the request of customers to meet personal travelling allowance (PTA), basic travelling allowance (BTA), medicals and tuition fees.
Analysts unanimously agreed on Tuesday that the CBN should continue its intervention efforts at the forex market to ensure a convergence of parallel and inter-bank rates at some point.
Ibrahim Tajudeen, research analyst at Chapel Hill Denham, said the CBN should continue to inject liquidity into the forex market because that would help divert demand away from the parallel market to banks
“We should expect a convergence of parallel market rate and bank rates at some point”, Tajudeen told BusinessDay on phone.
Ayodeji  Ebo, acting managing director, Afrinvest Securities Limited, said this further buttressed the significant pent-up demand in the forex market.
“I think the CBN should sustain the supply of dollars to the foreign exchange market. However, the CBN also needs to take that bold step to review the policy around the list of 41 items banned from accessing forex in the interbank market”, Ebo said in his emailed response.
Ebo said the domestic manufacturers can be protected using other measures like higher tariff by the fiscal managers to discourage importation. Consequently, this will further reduce pressure in the parallel market, and in turn generate a convergence of the forex rate between the interbank market and the parallel market.
Then, what happens is that there will be no incentive to round trip anymore, hence reducing artificial pressure in the parallel market. Once the supply is sustained, confidence will be restored and as such, improve inflow from Nigerians in Diaspora as well as foreign investments.
In her emailed response to BusinessDay, Razia Khan, managing director, Chief Economist, Africa Global Research, Standard Chartered Bank, London, said the CBN’s sales of forex are welcome as a means of clearing the backlog of forex demand if and only if it is part of a broader plan towards foreign exchange liberalisation.
In the absence of a more sustainable forex policy, she said it is a second best solution, as the basic problem of the lack of liquidity in the interbank forex market (which ultimately pushes activity to other, more flawed markets) does not go away.
“The Economic Recovery Plan released today appears to endorse a more flexible foreign exchange regime to safeguard reserves.  This is good news.  But how quickly a more workable forex policy can be implemented will be key”, Khan said.
Charlie Robertson, Renaissance Capital’s Global Chief Economist, said in an emailed response that “for as long as oil prices remain high and oil production is 2mbpd, and as foreign exchange reserves are around $30 billion, then CBN should sustain intervention, Nigeria should let dollars flow into the market. It will help lift GDP growth”.


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March 8, 2017 | 1:00 am
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