CBN Removes Exchange Rate Band on Interbank FX Transactions

By Adedapo Adesanya

The Central Bank of Nigeria (CBN) has announced a removal of the spread on foreign exchange (FX) transactions among banks, in its most adacious efforts to prop up the country’s forex market.

In a notice released on Friday evening signed by Mrs Omolara Omotunde Duke, the Director of Financial Markets Department, the CBN announced it is discontinuing any cap on the spread on interbank foreign exchange transactions and restrictions on the sale of interbank proceeds.

“A key objective of the ongoing foreign exchange market reforms by the Central Bank of Nigeria is to promote a market-based price discovery system. Consequently, the Bank hereby discontinues any cap on the spread on interbank foreign exchange transactions and restrictions on the sale of interbank proceeds,” the statement said.

The apex bank directed that authorized FX dealers are to continue to conduct their foreign exchange transactions on a “Willing Buyer and Willing Seller” basis. This approach is so that market forces of supply and demand will determine Nigerian exchange rates rather than the initial set limit.

The CBN warned that they are to strictly adhere to high ethical standards in their dealings in the foreign exchange markets.

“This includes but not limited to adopting appropriate price disclosures and transparency for transactions,” the statement said.

“Please note that all executed transactions are to be recorded immediately on the relevant treasury systems and reported to market authorities as stipulated,” it added.

Over the last week, the apex bank has issued new set of directives to boost its monetary functions including eliminating the initial cap on exchange rates quoted by International Money Transfer Operators (IMTOs).

The new directives are part of response to ease the FX market and eliminate suspected cases of excessive foreign currency speculation and hoarding in Nigerian commercial banks.

Earlier today, the CBN Governor, Mr Cardoso said in addition to fixing supply, the demand side of the market must play a role in helping the market.

He added that in the last weeks, Nigeria has attracted over $1 billion in inflows in positive signal that the market was healing after recent headwinds.