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Understanding Key Aspects of CBN’s New Forex Guidelines

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Understanding Key Aspects of CBN’s New Forex Guidelines

 

The Central Bank of Nigeria has been hailed by analysts for abandoning its Naira peg rate for a more flexible exchange rate, after previous refuting the decision even as its external reserves plunged and inflation surged to a six-year high.

Here are the key aspects of the new forex guidelines. Click here for the 13 guidelines.

CBN will participate in the market through periodic interventions to either buy or sell forex.

The central bank periodic interventions, would allow the CBN to regulate possible market imbalances, either to prop up Naira against the US dollar or to lower the Naira to stimulate the economy through exports. This will also allow the central bank to manage the activities of Forex Primary Dealers (FXPD), since there is no predetermined spread between the CBN and FXPD, which means spread can also be adjusted to accommodate the current market situation.

CBN to introduce non-deliverable over-the-counter naira-settled futures.

The introduction of non-deliverable forward, perhaps is the most unique of all the guidelines, one because it will help curtail the loophole created in the previous forex policy that allow speculators determine the exchange rate at the parallel market, and also encourage businesses and investors to hedge against eventualities. Hence, eliminate hoarding due to fear of uncertainties.

What this means is that, if you need forex transaction in December, you can peg your foreign exchange rate at let’s say N250 and if in December exchange rate is N270, the central bank will offset the N20 gap, such that you are not losing any money.

“But if the rate on that day is lower than the deal date rate, you’ll pay the Naira equivalent.”

Again, it will encourage capital importation from foreign investors, since they can now hedge against a further plunge in oil prices and at the same time buy forex at a predetermined rate to remit proceeds.

Non-oil exporters now allowed unfettered access to their FX proceeds.

Another bold move, is allowing non-oil exporters unbridled access to their FX proceeds, this initiative has officially brought back diversification agenda to the table and indicate the readiness of the government to tackle Nigeria’s mono-crude oil status. Especially, knowing that non-oil sector contributed 89.71 percent to the first quarter GDP, after falling 5.77 percent, the highest in years.

However, this does not mean gauge of consumer prices (inflation) will drop from the current 15.6 percent, if any changes it might surge to 16 percent in the second quarter pending the time the current policy would have filtered through key industries.

Overall, the flexible exchange rate will once again position Nigeria as an investment destination, boost job creation, enhance importation, increase consumer confidence and modulate consumer prices in the long run if well implemented.

 

 

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

Forex

Zenith Bank Joins Other Banks to Cap International Spend Limit at $100/Month

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Zenith Bank Caps International Spend Limit at $100 Per Month

Following persistent forex scarcity impacting the nation, Zenith Bank has joined other deposit money banks capping international spend limits.

In an e-mail to customers, the lender said “Please be informed that the monthly international spend limit for your Zenith Bank Naira Card has been reviewed to US$100 while the use of Zenith Bank Naira cards for international Automated Teller Machine cash withdrawals is still temporarily suspended.’

It added that this review is in response to change in Nigeria’s macroeconomic factors.

The bank, however, advised those with higher international spend requirements than the US$100 stipulated above to visit any Zenith branch and request a foreign currency debit or prepaid card “which are available in US Dollar, Pounds and Euro variants.”

This is coming a few weeks after UBA, GTBank, First Bank and others capped their international spend limits to $100 for similar reasons. However, Zenith’s decision was after the Central Bank of Nigeria commenced forex sale to the Bureau De Change Operators across the country.

 

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Nigeria’s Foreign Exchange Inflows Decline by 43.2% in May

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CBN Says Foreign Exchange Inflows Decline to $5.52bn in May

The total foreign exchange inflows into Nigeria in the month of May declined by 43.2 percent, according to the Central Bank of Nigeria’s report.

The report said the COVID-19 pandemic negatively impacted capital inflows during the month as the total foreign exchange inflows dropped to $5.52 billion.

It said “Inflows through the CBN and autonomous sources were negatively impacted.

“On a month-on-month basis, foreign exchange flows into the economy declined to $5.52bn in May 2020.

“The decline in inflow, relative to the level in April 2020, was attributed to the lower receipts from oil sources, which fell sharply by 55.2 per cent because of the continued fragility in global crude oil demand.

“Inflow through autonomous sources, particularly invisible purchases, declined by 7.0 per cent to $3.51bn, relative to the preceding month, while there was a 66.2 per cent fall in inflow through the CBN, which stood at $2.01bn in May 2020.”

However, foreign exchange outflows from the country declined by 23.9 percent to $2.50 billion in the month. Likely because of forex scarcity and the central bank forex rate adjustments that curbed outflows by foreign investors.

A break down of the report showed that outflow through the apex bank declined by 30.9 percent to $2.19 billion, below what was recorded in April.

But outflow through autonomous sources, mainly imports and Invisibles, rose by 152.2 percent to $0.32 billion. Higher than the amount reported for the month of April.

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ECOWAS Slows Down on Eco Launch, Says Now Adopting Gradual Approach

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ECOWAS Halts Eco Launch, Says New Launching Date Will Be Announced

The Economic Community of West African States (ECOWAS) on Tuesday said it has postponed the planned launch for Eco, its single currency.

In a communiqué issued at the end of the 57th Summit of the Heads of State and Government of ECOWAS held on Tuesday, member states agreed to adopt a gradual approach for the launching of Eco given changes in economic fundamentals of member states.

They said a new road map for the launching would be announced and that member states are exempted from compliance with the body’s convergence criteria in 2020. Again, suggesting the negative impacts of COVID-19 on member states have forced the body to adopt a new launching approach, especially with most member states not meeting convergence criteria before the pandemic.

The communique read, “Member states are to be exempted from compliance with the convergence criteria in 2020, while also developing a new macroeconomic convergence and stability pact among the ECOWAS member states.”

President Muhammadu Buhari, who attended the summit, warned that the whole project could face serious jeopardy unless member states complied with agreed processes of attaining the body’s collective goal.

Buhari also expressed concern over Francophone countries within the West African Economic and Monetary Union adopting Eco as a replacement for CFA Franc ahead of the rest of member states.

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