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The Central bank of Nigeria assures the public that its intervention in the foreign exchange market to stablise the naira will be sustained
| By Anayo Ezugwu | Jul 10, 2017 @ 01:00 GMT |
THE Central Bank of Nigeria, CBN, in the last five months has pumped in $7.331 billion as foreign exchange interventions into the interbank and Bureau de Change, BDC, markets to stabilise the naira against the dollar. Between February 21 and June 28, the CBN has intervened in the foreign exchange, FX, market in 33 sessions, the latest being the $195 million placed on Wednesday, June 28.
A breakdown of the dollar sales showed that $680 million was pumped into the market in February; $1.542 billion was sold in March; $1.616 billion in April; $2.102 billion in May; and $1.391 billion in June. The $2.102 billion sold by the Bank in May was the highest in four months. In May, the central bank sold dollars in eight different sessions.
The interventions have been targeted at retail invisibles for PTA, BTA, school fees and medicals, wholesale forwards, SMEs, and secondary market intervention sales, SMIS. The dollar sales by the apex bank has helped in eliminating the pressure in the forex market, ensured exchange rate stability and eliminated currency speculators. As a result of this measure, the naira which fell to a historic low of N525 to a dollar at the parallel market early in the year has been trading around N360 to a dollar since April.
The increased foreign exchange supply by the CBN has resulted in a significant appreciation in the value of the naira against the US dollar. The central bank’s data also showed that the reserves have been experiencing a steady increase despite the sustained intervention by the apex bank. The reserves, derived majorly from the proceeds of crude oil earnings climbed by $59 million to $30.366 billion as at April.
Following the CBN’s continued intervention in the FX market and its resolve to continue to flood commercial banks with dollars, the banks that hitherto had no FX to meet their obligations have cleared the backlog of legitimate requests for foreign currencies such as basic travel allowances, school fees and medicals. In fact, the banks are reported to be holding excess FX.
Despite the interventions, some people are worried about its sustainability and whether they will work miracles to restore investors’ confidence and stimulate productive activities needed to revamp the economy which has been in recession since last year.
Anya O. Anya, professor of Zoology, and pro-chancellor of Michael Opara University of Agriculture, in a recent interview with Realnews, said sustainability of a policy is what makes people confident that things will go in a particular way. He said what the CBN is doing is of course having some effect but people do not have confidence that it will last. According to him, people don’t have confidence that it will be sustainable, so, even now there are people who are busy buying the little there is because they are not confident that in three months’ time they will have it.
“When this administration was preparing to form government the exchange rate was between N150 – N170. Within a year, it went up to N300 or more. Within months it went up to N500. Why? Because the signals that went out from the government told people to be careful. So, people held on and were waiting for you to decide what to do. But money is a very restless commodity. Once you tell it wait let me make up my mind it will find a channel and it will go and that’s why in the last one year its mind boggling to know the amount of money that went out of Nigeria.
“Capital flight once that happen you will now have a situation where there is scarcity of dollar. Therefore, more people will be scrambling, trying to get the few. Some are desperate enough to buy at whatever price you name. And in Nigeria when things go up they don’t come down. Even this one that we think has come down, let’s wait and see what happens in three months time,” Anya said.
But Isaac Okorafor, acting director, corporate communications, CBN, had expressed optimism that the CBN’s interventions would be sustained, pointing out that with $50 per barrel of oil, the reserve will be above $30 billion. He said the CBN will continue with its interventions to substantially ease the forex pressure on visible and invisible needs of customers.
He stated that the apex bank provisions had outstripped demand of forex, FX. “The CBN has done its intelligence work in the foreign exchange market and we came to the realisation that much of what was driving the demand in the bureau de change, BDCs and the parallel market was a bubble, speculation. And we reasoned that since there was pressure on those two segments from people seeking foreign exchange for PTA (Personal Travel Allowance), medicals and tuition, that if we successfully address those needs that the pressure will come down.
“The other issue was that the level of our reserve before now. We didn’t feel comfortable enough to do the kind of intervention that we required. Now we have decided to undertake the intervention at this time because we are a bit more comfortable with the current level of our reserve. And because of that we intervened in the market and the market reacted positively and the Naira began gaining strength,” he said.
Tags: Anayo Ezugwu Anya O. Anya CBN Central Bank of Nigeria FOREX Market FOREX: CBN Interventions Hit $7.331bn in Five Months naira Realnews Zoology
