Highlights of CBN’s intervention in Nigeria’s fx market in 2019

OBVIOUSLY, the forex market in Nigeria should remain one of the top priorities for the Federal Government to sufficiently address in order to avoid a consistently double-digit inflation rate in Nigeria.

Nigeria’s deep hunger for imports and other forex related requirements makes it susceptible to movements in the forex market.

The Central Bank of Nigeria’s policies and reforms over the past three years have helped liquidity in the fx market. The result is obvious with the stability of the various exchange rates available currently in the country.

The CBN’s interbank/official rate (for priority transactions) is currently N307/US$. This compares with N365/US$ at the Investors and Exporters (I&E) window.

The oil-related taxes contribute directly to external reserves while foreign portfolio investors (FPIs) contribute indirectly to the external reserves. The crude oil price averaged $64 per barrel in 2019. Without an oil price crash, we anticipate that the stability in the fx market would be maintained.

Experts have noticed that there has been a significant reduction in fx supply from FPIs at the I&E window.






     

     

    Over the past few months, the I&E window has become dependent on local sources (including CBN) for fx inflow. Based on data from FMDQ Securities Exchange, fx inflow from FPIs in (2019 Q4) amounted to US$1.6bn, accounting for 21 percent of the total inflow.

    Liquidity has been provided in the fx market by the support of CBN by supplying funds in the market. The secondary market intervention sales (Wholesale and retail combined) summed up to $3.3bn in Q3 2019 compared with $2.4bn in the second quarter of last year.

    The CBN’s sales to Small and medium-sized enterprises (SMEs) and for invisibles (personal travel allowance inclusive) amounted to US$1.32bn in Q3 2019. In an attempt to remain competitive, some banks were offering a resale rate of N357.50/$ or N358/$ compared with the upper limit of N360/$ prescribed by the CBN.

    In conclusion, Nigeria could attract more capital inflows to boost its reserves and maintain exchange rate stability. However, a more conducive macro environment is required.

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