CBN Breaches Own Band, Sells Dollars At N162.50

Nigeria’s central bank auctioned dollars at 162.50 naira at its official forex window, outside its preferred band of 150-160 and ahead of a key interest rate decision today.
nigeria-central-bank House

It is the second time in a row it has auctioned the currency outside a band it burst out of in May.
It auctioned the greenback at 158.41 to the dollar at its previous session.
The naira, which is down 9 percent this year, hit a record low at the interbank window on Monday on concerns that a slide in global oil prices could undermine the central bank’s efforts to keep defending the currency, dealers said.
The fortunes of the national currency, the Naira took a sharp turn downwards November 18, 204 as it fell by 270 kobo, with the parallel market exchange rate rising to N180 per dollar from N177.3 on Monday.
Since the beginning of the month, the Naira has fallen against the US dollar by N11.9 at the interbank market, and N15 at the parallel market.
Interbank and parallel market operators attributed this sharp depreciation to restrictions introduced by the CBN to curb foreign exchange demand at the official market. Falling crude oil prices, coupled with depleting Excess Crude Account has triggered palpable anxiety about the value of the Naira. Stocks had also been hit as a result. On October 28, in addition to a 10-kobo margin limit imposed on intervention dollars, the CBN banned banks from selling dollars to Bureaux de Change (BDCs). Furthermore, on November 6th, the CBN excluded importation of six items from official foreign exchange, saying it would no longer sell official forex for their importation. The items included electronics, finished products, information technology, generators, telecommunication equipment and invisible transactions. According to the apex bank, the items would henceforth be funded from the interbank foreign exchange market only.
Thus, the apex bank unwittingly shifted forex demand for importation of the six items from the official market to the interbank market.
The two restrictions combined triggered sharp increase in demand for forex in the interbank market, and scarcity of dollars in the parallel market. Though the CBN was selling intervention dollars to banks, banks could trade with the dollars because of the 10 kobo limit. This, according to a foreign exchange dealer created a scarcity situation in interbank and the subsequent steady depreciation of the naira.

Author: News Editor

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