Thursday, 23 February 2017

CBN moves closer to Naira devaluation, announces special intervention guidelines

Naira notes

There are indications that the Central Bank of Nigeria (CBN) is taking steps to devalue the Naira and arrest its freefall in the parallel market.

The apex bank had on Tuesday provided 23 com­mercial banks with $370 mil­lion at an exchange rate
up to 15 percent weaker than the official rate. The bank also devalued the Naira for private in­dividuals who account for 20 percent of the country’s total foreign exchange demand.

The CBN announced on Tuesday that it sold dollars using one- and two-month forward exchange rates to commercial banks whose bids ranged from N315 to N360 per dollar, up to 15 percent weaker than the official rate of N305 that com­mercial importers typically use.

In a statement posted on it’s website, the CBN had an­nounced a special Wholesale Intervention Forward no ex­ceeding 60. Forward exchange rates are rates at which banks agree to exchange one currency for another at a future date.

According to analysts, selling the dollars at new one- and two-month forward rates may set expectations for the cen­tral bank to allow the Naira to trade at a weaker level in the future having kept it at an ar­tificially strong value.

The CBN had disclosed that banks bought $216.5 million in one-month for­wards, and $154.3 million in two-month forwards.

Meanwhile the country’s dollar supply had been put under pressure by limit­ed foreign exchange as well as the low crude oil export which compelled the feder­al government to devalue the naira in June 2016.

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