By Modupe Gbadeyanka
Not less than $9 billion has been released to the foreign exchange (forex) market in the last seven months by the Central Bank of Nigeria (CBN) in order to keep the Naira at the current rate it trades at the market, Daily Trust is reporting.
The apex bank started its regular intervention on February 21, 2017 and the forex sales were intended to cover for personal and business travels, medical needs, and school fees, futures market and other approved transactions.
Since then till August 31, Daily Trust said about $9 billion has so far been released based on all the official data of forex sales released to the public by the CBN within the period.
When this intervention began, the local currency was being traded at over N520 per Dollar, but at the moment, it has been hovering around N360 to N370 per Dollar.
On February 21, when the CBN interventions began, the CBN offered for sale $370,810,810.79 to 23 banks to meet the “visible and invincible” requests of customers. At the end of February, the CBN had sold out some $550,900,000 in interventions.
Over the next six months FX sales by the CBN were as follows: March; $1,022,000,000; April, $1,321,860,000; May, N1, 422,800,000; June, $1,651,500,000; July, $1,638,800,000 and August, $1,301,000,000.
Thus in seven months, CBN had intervened in the forex market to the tune of $8,908,860,000. Within the period, the Naira appreciated from N520/$1 to N365 to the Dollar at the parallel market.
The forex intervention also doused tensions in the forex market and forced rent seekers out of the market.
But experts wonder whether the cost to the country of nearly $9 billion, against the gains recorded are worth it.
They argue that it is worrying the CBN is funding the market more than the private sector investors,. The private sector ideally should fund the FX market more than the Central Bank, they argue.
Prior to Nigeria’s forex crisis, the market was funded by both the private sector and the CBN.
At the beginning, Nigeria had about $2.7 billion foreign investment from the JP Morgan and $500 million from Barclays but all of these monies were taken out when the CBN tightened controls on the Naira.
Nigeria’s external reserve dropped to $28 billion and the CBN couldn’t meet a lot of forex demands such as the repatriation of funds by the airlines.
To conserve the foreign reserve, the CBN had even stopped funding BDCs and invisibles in addition to restriction of forex on 41 items.
Mr Moses Azege, a Lagos based financial expert said the CBN intervention was unusual, the market didn’t expect it but it worked in stabilising the market.
“Before the intervention, the market was volatile, a lot of profiteering and the banks also got into the business of round tripping,” he said.
He however noted that, the intervention averted the forex apprehension, and ended business for rent seekers and speculators.
On whether the CBN move was sustainable he said, so far, the CBN has shown it can sustain it with the level of interventions.
Mr Rislanudeen Mohammed, the former Acting Managing Director, Unity Bank Plc, said the “Central Bank intervention over the last several months has impacted positively in stabilizing the foreign exchange market and reducing the gap between parallel and black market rates from about N520 to a dollar to the present rate of about N365.”
The “Forex liquidity has also helped in reducing the impact of cost push and imported inflation as evidenced by consistent reduction in core inflation data to present level of 16.05 percent as released by National bureau of statistics. Introduction of NAFEX has also improved transparency in the market hence incentivizing foreign portfolio as well as direct investments” he noted.
However, he explained that “sustaining this intervention is both unrealistic and impossible in the long term. Note that positive oil price, improved oil output as a result of reduced sabotage by Niger delta avengers as well as output quota waiver by OPEC combined to support improved forex income earnings and consolidating improved foreign reserves despite the intervention and attendant depletion of the reserve. Those three factors may not last ad infinitum. To consolidate on success made so far, we need to expeditiously walk the talk in export income diversification.”
On whether the naira can exchange for N200/$1 in the near future he said, it is basically a function of demand and supply. But even the IMF is looking at N365 as the official rate. But it can be determined by market forces” he said.
Nigeria’s foreign exchange reserves stood at a two and a half-year high of $31.81 billion as of August 29, the CBN data showed yesterday.
The latest figure was at a level it last reached in January 2015. Experts have attributed the appreciation of the local currency to the growth in the external reserve and ability of the apex bank to provide enough forex for the market.
