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CBN Mops up Liquidity to Support Naira



  • CBN Mops up Liquidity to Support Naira

The Central Bank of Nigeria sold N107.64bn ($353m) in Treasury bills on Friday in a move to soak up excess liquidity from the banking system and curb pressure on the naira.

The CBN sold N54.42bn in the 167-day Open Market Operations Treasury bills at 18 per cent and N55.22bn paper at 18.5 per cent, traders said.

But the effect of the sale was countered by additional liquidity from the repayment of matured bonds forcing overnight lending rate down to five per cent on Friday from 30 per cent at the start of the week.

Traders said banking system liquidity was N246bn in credit on Friday, up from N206.96bn in deficit a week ago. The money markets were also expecting the monthly government budget disbursement next week.

On the forex market, the naira eased on the black market to 390 per dollar and held steady on the official market at 305.85.

The naira had depreciated to 390/dollar on Thursday, down from 388/dollar on Wednesday.

The local unit has been hovering between 385/dollar and 390/dollar in the last one week.

Currency and financial experts have said the local currency may not appreciate above 380/dollar despite the spate of dollar sale by the central bank.

The naira had on Tuesday weakened by 18.3 per cent to 374.25 at the “Investors and Exporters FX Window’’, a new foreign exchange window introduced by the Central Bank of Nigeria to attract foreign portfolio investors into the country and boost liquidity in the forex market.

The local unit depreciated against the United States dollar to 374.25, compared to 305.90/dollar quoted on the spot interbank market, data on the FMDQ OTC Securities Exchange showed.

The CBN has said it will allow investors to trade the currency at market determined rates.

The CBN earlier established the new forex widow for investors and exporters and tagged it “Investors and Exporters FX Window”.

A circular issued by the CBN said the purpose of the window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

The circular, signed by the bank’s Director, Financial Markets, Dr. Alvan Ikoku, listed eligible transactions under the new window to include invisible transactions such as loan repayments, loan interest payments, dividends/income remittances, capital repatriation, management service fees and consultancy fees.

Also on the eligible list were software subscription fees, technology transfer agreements, personal home remittances and any such other eligible transactions including ‘miscellaneous payments’ as detailed under the Memorandum 15 of the CBN Foreign Exchange Manual.

Currency analysts and economic experts have, however, doubted the window funds will attract foreign portfolio investors.

They argued that as long as the country maintained multiple exchange rates, the new initiative by the CBN might not yield the expected result.

According to analysts, Nigeria currently has five exchange rates, namely: the official rate, the black market, a rate for Muslim pilgrims going for Hajji, a retail rate set by Bureau De Change Operators and a rate for foreign school fees.

“The move … is unlikely to … attract sizeable inflows until there is harmonisation between the different markets,” the Africa Chief Economist at Standard Chartered Bank, Razia Khan, said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.