CBN crashes retail forex rate by 3.4%

The Central Bank of Nigeria (CBN) yesterday undercut foreign exchange (forex) speculation and deepened its quest for stronger naira by offering to sell forex to retail end-users at a lower rate.

In a circular announcing a new round of forex sales to Bureau De Change (BDC) operators, the apex bank slashed the effective retail market rate for end-users by 3.4 per cent.

The reduction was from a maximum of N1, 314.01 per dollar to N1, 269.765 per dollar.

According to the circular, BDCs will be able to buy $10,000 worth of forex from the CBN at a rate of N1, 251 per dollar as against the $20,000 allocation and N1, 301 per dollar rate offered in February.

Under the new regime, the BDC operators have been allowed to sell to eligible end-users at a maximum spread of 1.5 per cent above the purchase price from the CBN.

Previously, the spread was capped at 1.0 per cent. BDCs are expected to fund their accounts before the close of business on Thursday for the latest round of forex sales.

The apex bank warned that it would sanction any BDC found violating the terms of the forex sales to the retail market.

In a letter addressed to the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Director, Trade and Exchange Department at the CBN, Dr. Hassan Mahmud, explained the rationale behind the adjustments. The CBN stated it aims to address “continued price distortions at the retail end of the market,” which the apex bank believes contributes to a wider gap between the official exchange rate and the black market rate.

The circular reads: “The CBN has outlined specific instructions for the BDCs to access forex, including that all eligible BDCs must make naira payments to designated CBN naira deposit accounts before the close of business on Thursday, March 28th, 2024 and confirmation of payment, along with required documentation, must be submitted for forex disbursement at designated CBN branches in Lagos, Abuja, Awka, and Kano.

“The CBN’s revised forex policy for BDCs highlights its ongoing efforts to achieve a stable and market-driven exchange rate in Nigeria. This move follows the initial resumption of forex sales to BDCs in February 2024, which aimed to address challenges in the retail forex market.”

The naira had appreciated by 12.0 per cent to N1, 431.49 per dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

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The latest adjustment in forex rate came as analysts highlighted the positive effects of the ongoing monetary reforms by the CBN.

In a report released yesterday, investment banking think-tank, CardinalStone, stated that “monetary reforms are yielding early fruits”, noting that recent developments in monetary policy has led to “notable recovery of the naira and the resurgence of foreign capital flows”.

“In the last few weeks, the CBN leadership has intensified efforts to restore market confidence and improve communication with investors, which has largely been positive for Nigeria’s investment case.

“To provide context, confidence in the Nigerian forex market has materially improved due to the restructuring of market frameworks, intensifying of hawkish rendition, and the clearing of all legal outstanding forex backlogs”.

According to analysts, investors are taking a bet on Nigeria as the payments of forex backlogs and improving carry trade opportunities are piquing investors’ interest.

“Precisely, the cumulative foreign inflows – Foreign Portfolio Investments (FPIs) and Foreign Direct Investments (FDIs), since the beginning of the year are estimated at $2.1 billion, compared to $1.6 billion in 2023.

“The level of inflow is consistent with robust trade vis-a-vis those of major African countries and aided by hawkish monetary policy and the relative stability of the naira evinced by the 12-month currency forward,” CardinalStone stated.

 The analysts noted that daily forex turnover – a measure of liquidity — has surged to a year-to-date average of $4.3 billion compared to $2.3 billion last year.