CBN introduced measures aimed at conserving FX reserves, boosting inflow
With its weekly intervention of $210 million, the Central Bank of Nigeria (CBN) has, as at the weekend, injected a total of $840 million into the foreign exchange market this month, as part of efforts to ensure stability of naira, findings by New Telegraph show.
According to the Cowry Weekly Financial Markets Review & Outlook (CWR) reports issued by Cowry Asset Management Ltd, the apex bank pumped the sum of $210 million into the forex market weekly between June 3 and June 24, 2022. This means that for the month of June, CBN defended naira with $840 million. New Telegraph’s analysis of the reports indicates that during the period under review, CBN allocated a total of $400 million and $220 million to Wholesale Secondary Market Intervention Sales (SMIS) and small and medium scale enterprises respectively, while another total sum of $220 million was sold for Personal Travel Allowance(PTA), Basic Travel Allowance (BTA) and other invisibles.
As the CWR report for June 24, 2022 put it, “at the Interbank Foreign Exchange market, N/USD closed flat at N430.00/USD amid CBN’s weekly injections of $210 million: $100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for invisibles.”
In its January monthly report on “Foreign Exchange Market Developments” released last month, CBN said it injected $3.36 billion into the foreign exchange market in December 2021 and January 2022 as part of efforts to ensure the stability of naira.
The report said: “Total foreign exchange sales to authorised dealers by the Bank was $1.65 billion in January, representing a decrease of 3.1 per cent, relative to $1.71 billion in December 2021. “A breakdown shows that foreign exchange sales at the Small and Medium Enterprises window, interbank/ invisible foreign exchange sales and matured swaps contracts rose by 24.4 per cent, 25.9 per cent, and 60.8 per cent to $0.14 billion, $0.18 billion and $0.21 billion, respectively, in January, relative to the amount in December 2021.
“However foreign exchange sales to the Investors and Exporters and Secondary Market Intervention Sales windows fell by 13.7 per cent and 16.3 per cent to $0.58 billion and $0.54 billion, respectively, in the month under review.” Analysts note that in the aftermath of the 2020 COVID-19 crisis, which led to the price of oil (the commodity that accounts for over 70 per cent of Nigeria’s forex earnings) dropping to record lows and also resulted in a sharp decline in capital inflows into the country,
CBN introduced several measures aimed at both reducing its supply of dollars to the forex market and encouraging diaspora remittances.
Specifically, in July last year, CBN ended the sales of forex to Bureaux De Change (BDC), saying that that the BDCs had defeated their purpose of existence to provide forex to retail users, but instead, had become wholesale and illegal dealers.
The apex bank had been selling $20,000 per week to each of the over 5,500 BDCs across the country, translating to an annual allocation of $5.72 billion to the operators. Also, as part of measures to boost forex inflow into the country, CBN,
in November 2020, announced that beneficiaries of diaspora remittances, through the International Monetary Transfer Operators (IMTO), would henceforth be allowed to receive such inflows in foreign currency through the designated bank of their choice. In addition, the banking industry regulator, on March 5, last year, introduced a “Naira-4-Dollar” policy, which, it said, was aimed at boosting official channels of Diaspora remittances and increasing foreign exchange inflow. Under the policy, the apex bank introduced a rebate of N5 for every $1 of fund remitted to Nigeria IMTOs. Commenting on the initiative at the time, CBN Governor, Mr. Godwin Emefiele, had stated: “In an effort to reduce the cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, the Central Bank of Nigeria has introduced a rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs licensed by the central bank. “We believe this new measure will help to make the process of sending remittance through formal bank channels cheaper and more convenient for Nigerians in the Diaspora.” Indeed, a non-Executive Director/ Member, Monetary Policy Committee (MPC) at CBN, Prof. Mike Obadan, told participants at a two-day seminar organised by CBN for finance correspondents and business editors in March, this year, that the Naira-4-Dollar scheme had been very successful in attracting diaspora remittances. He said: “During COVID-19, diaspora remittances averaged six million dollars a week, but now it records about $100 million a week. The amount of foreign exchange coming to the country through remittances has shot-up.
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