CBN takes fresh measure to maintain stability as Naira depreciates to N368/$1

 

• Its lowest in more than a year

 

As part of the efforts to address the rising demand for the dollar, the Central Bank of Nigeria (CBN) has announced special intervention of foreign exchange sales to Bureau De Change (BDC) operators.

This is so as the Naira depreciated against the United States dollar by N6 on the parallel market on Thursday, as it closed at N368/$, its lowest level in more than a year, as a result of increased demand.

In a letter to the currency dealers dated November 29, the apex bank explained: “With the approach of the yuletide season and the resultant increase in demand for personal travel allowance, the CBN has in addition to the existing market days (Monday, Wednesday and Friday), introduced a special intervention day of every Thursday $15,000 per BDC commencing on Thursday, December 6, 2018.

“Consequently, all BDCs should note that the cut-off time for receiving naira deposits into their respective bank accounts for the Thursday’s special intervention shall be 10 a.m on the Thursday.

“All operators are hereby advised to ensure strict compliance with the provisions of the extant regulations on the disbursement of forex cash to their respective customers as any case of infraction will be appropriately sanctioned.”

Meanwhile, the naira had closed at N362 to a dollar the previous day.

Some currency dealers however attributed the development to the activities of speculators in the market who were said to be hoarding the US dollar.

The President of the Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, who confirmed the naira depreciation on the parallel market, warned his members to desist from any form of unethical practice in the market.

“You know, some people are buying the in expectation that the naira will fall. But I can assure you that ABCON and the Central Bank of Nigeria are working closely to ensure that the stability in the market for about two years now is sustained,” Gwadabe told THISDAY.

It was reported last week that the combination of tightening global financing conditions, which has resulted to capital outflows in the country, the elevated global risk aversion, 2019 election uncertainties and high services payments were likely to put pressure on the naira.

Analysts at CSL Stockbrokers Limited and the Financial Derivatives Company Limited (FDC), had stated this in two separate reports.

They had also pointed out that capital repatriation by foreign investors was also expected to heighten dollar demand.

To the CSL, Nigeria’s periodic currency crises are mainly due to policy makers’ inability to deal with the macroeconomic phenomena called the “impossible Trinity.”

It said, “The impossible trinity (also known as the trilemma) postulates that it is impossible to have all three of the following at the same time: a fixed foreign exchange rate, free movement of capital (absence of capital controls) and an independent monetary policy.

“We think pressure will appear in the foreign exchange market and a parallel market premium in the range of 10-20 per cent will return. Given this view, we recommend that local fixed income investors shorten duration and remain focused on the short-end of the curve.”

On its part, the FDC, a research and financial advisory company anticipated, “increased forex demand in the next couple of months as manufacturers commence inventory build-up for festive sales. This, in addition to increased election spending, could result in exchange rate depreciation. However, the CBN has iterated its preference for exchange rate stability over buoyant external reserves. Hence, we expect the currency to remain relatively stable in 2018.”

The report pointed out that the depletion of Nigeria’s external reserves was expected to be sustained in subsequent months,” owing to forex demand pressures arising from election and festive spending.”

The firm also predicted one more hike in the US Federal Reserves’ (the Fed) interest rate in 2018 which it stated would further intensify capital outflows, heightening pressures on the exchange rate.