The Central Bank of Nigeria (CBN) yesterday intervened in the foreign exchange (forex) market with a $195 injection into key segments of the economy.
The forex inflow, which came on the first day of business after the Eid-el-Fitr celebration, went to various segments of the inter-bank market.
The intervention was part of CBN’s plans to shore up the value of the naira against the dollar and achieve its exchange rate stability goal. The naira continued its stability in the forex market, closing at N370/$1 in the parallel market, from N520/$1 in February.
The narrowing of rate gap was achieved after the CBN in the last four months pumped over $5 billion into the interbank, bureau de change, wholesale spot and forwards auction segments of the market.
Also, supporting the naira is the newly introduced Investor/Exporter Forex window which has attracted $2.5 billion from foreign investors since April 24, when it was introduced.
Analysts said the introduction of a new foreign exchange window for investors and exporters targeted at increasing forex supply in the market and allowing the timely settlement of transactions helped achieve the current exchange rate.
A breakdown of Wednesday’s intervention indicates that authorised dealers in the wholesale window segment received a $100 million offer from the bank. Small and Medium Enterprises (SMEs) and invisibles windows were allocated $50 million and $45 million.
The CBN has been intervening on the official market in the last few months to narrow the spread between rates on the official market and black market.
The naira came close to converging at the investor foreign exchange window and black market last Friday, with analysts attributing the development to increased dollar liquidity in the forex market.
The naira was quoted unchanged at N370 per dollar at the black market.
Commercial lenders are yet to put up a quote on the interbank market. The naira closed at N305.85 to the dollar on the interbank window on Friday.
Nigeria is contending with a currency crisis brought on by low oil prices, which has tipped the economy into recession and created chronic dollar shortages. The CBN is keen on attracting foreign investors and at the same time maintaining a strong currency to ward off inflation.
It has at least six exchange rates, including a retail rate set by licensed exchange bureaux, official and black market rates and a window for investors where the naira can be traded at rates set freely between buyers and sellers.
The CBN’s Acting Director, Corporate Communications Department, Isaac Okorafor, confirmed the figures and disclosed that the Bank was impressed by the high level of transparency exhibited by stakeholders in the market.
The CBN had last Friday allocated $240 million to the Retail Secondary Market Intervention Sales (SMIS) for spot and forward deals. With the rate of inflation dropping from its April 2017 figure of 17.24 per cent to 16.25 per cent at the end of May, 2017, the CBN spokesman says the CBN remains upbeat that the fortune of the naira will improve further in the months to come.
But JPMorgan Chase & Co. and Renaissance Capital have said the naira rally, sparked by increased sales of foreign exchange forwards and looser capital controls, is contingent on the CBN continuing to sell down its foreign reserves.
Nigeria’s gross external reserves have continued to drop as the CBN intensify interventions in the forex market. According to CBN data, the reserves fell from $30,291,917,668 on June 7 to $30.2 billion on June 16.
The reserves had decreased by 1.19 per cent ($37 million) to $30.49 billion as at May 25 from $30.86 billion recorded at the end of April.
