FX Rates: CBN Says No Plan to Sell US Dollars to BDCs
The Central Bank of Nigeria (CBN) said there is no plan to commence weekly foreign currency sales to Bureau de Change operators after the monetary authority capped the foreign exchange (FX) spread to 2.5%.
The authority said this amidst insinuation and confusion on whether the CBN would resume weekly foreign currency sales to BDCs to reduce pressures in the parallel market and tame the worsening exchange rates.
Recall in a circular dated 17 August 2023, the apex bank released operational guidelines for Bureau De Change operators in a bid to drive improved efficiency of the forex market. The guideline came two years after Godwin Emefiele, the suspended CBN governor, announced the termination of sales of foreign exchange to that segment of the forex market.
The damage control by the monetary authority became necessary after its politically influenced naira devaluation spooked corporate performance, and the FX spread between official and parallel markets widened.
Some analysts believe the raging storm against the local currency across the market would continue due to a backup plan to support the naira from slipping further. Pressure points, according to currency traders, include rising obligations on foreign exchange reserves.
A number of market analysts and critics believe that the naira reform was politically motivated, thus creating a gap in planning and execution that would collapse the gap between official and parallel market rates.
The Naira has lost value across markets, traded at N920 per United States dollar at the open market where forex is readily available to users. Demand for foreign currency has continued to rise despite weak inflows from oil receipts and hanging questions on the true balance of Nigeria’s net external reserves.
On Friday, the premium between the official Investors and Exporters window and the parallel market increased to more than N150 on each US dollar transaction. Exchange rates have worsened as the CBN slowdown market intervention amidst weak inflows, and declining gross external Reserves.
In its operational guidelines, CBN sets an allowable spread of -2.5% to +2.5% of the Nigerian FX Market weighted average (WAR) of the previous day for operators.
The guideline also mandated a rendition of the statutory periodic report on the Financial Institution Forex Rendition System (FIFX) while the apex bank said violation of the rules may attract sanctions such as the withdrawal of the erring operator’s license.
After the monetary authority bit the bullet on FX reform in June, it adopted a managed-float FX regime, where FX spot rates would be determined by demand and supply. However, the government can occasionally when needed step in as a player (buyer or seller) and not as a regulator to stabilise the market.
In its market report, CSL Stockbrokers said beyond the resumption of sales of FX to BDCs which analysts believe will be a fallout of these new guidelines, CBN also needs to raise the ban on many items barred from sourcing FX from the official window so as to reduce the demand going to the parallel market.
“…we opine that such secondary fixes are only sustainable in the short term. There is an urgent need for structural reforms aimed at improving the supply of FX”, analysts added.
CSL Stockbrokers said these new regulations by the CBN are only sustainable if the CBN supplies FX to the BDCs. Meanwhile, the CBN spokesperson, Isa Mumin, told MarketForces Africa that there is no plan to return to weekly FX sales to BDCs.
“It would not be ideal to fix a spread for the BDCs when there is no control on the price at which they source FX and many of the operators have noted that they will fail to comply if the CBN fails to supply FX”, CSL Stockbrokers said in its market report. #FX Rates: CBN Says No Plan to Sell US Dollars to BDCs