‘Forex market developments may determine CBN’s policy direction’

THE swift reversal of policy on Net Open Position (NOP) of banks at the foreign exchange (forex) market post Monetary Policy Committee meeting may have signaled apex bank’s readiness to adjust policy options at any time.

  According to Afrinvest Securities Limited, the decision of the Central Bank of Nigeria (CBN) to raise the NOP limit on trading position for banks to 0.5 per cent of shareholders’ fund from 0.1 per cent also showed that its policies would continue to be anchored by developments in the foreign exchange market and level of external reserve.

  However, liquidity at the interbank money market opened at a moderate credit balance of N317 billion on Monday with expectations of more liquidity worth N201 billion from the Federation Account Allocation Committee (FAAC). 

  The moderate opening balance was on the back of the DMB’s provision for the CBN’s Retail Dutch Auction System of $200 million on Monday. 

  At the close of transactions, Overnight and Open Buy Back rates were pegged at 10 per cent and 9.5 per cent respectively.

  On Tuesday, both rates moderated to close at 6.5 per cent and 6.1 per cent as the anticipated N201 billion FAAC’s liquidity hit the monetary system. 

  However, CBN’s N260.34 billion liquidity mop up, which came almost immediately at the rate of 14.2 per cent for 161 days Open Market Operations, spiked the Nigeria Interbank Offered Rate (NIBOR) to a new high on Thursday to close at 9.6 per cent and nine per cent for the Overnight and OBB respectively.  

  At the close of trading on Friday, NIBOR rates on the average settled at 13.8 per cent with six month rate trading as high as 15.7 per cent, while overnight rate closed at 11.1 per cent.

  At the weekly forex auction held for Monday and Wednesday, CBN offered $200 million each, but sold $199.9 million and $173.7 million respectively with marginal bids pegged at N168/$1.

  The Naira recorded fortunes as it continued to trade lower than the CBN upper band target of N176.40/$ at the interbank market amid sustained upward volatility pressure. 

  Earlier on Monday, on the backdrop of the tight dollar liquidity and demand pressure, the local unit lost N2 to close at N187.10/$ despite the intervention efforts of the apex bank. 

  On Wednesday, the pressure on the Naira was sustained even as oil companies sold dollars in the interbank market, with the currency closing at an all-time low of N190.10/$.

  To curtail the pressure, CBN immediately reviewed the policy on NOP of banks to 0.5 per cent of shareholders’ fund from 0.1 per cent, providing the interbank market with the needed liquidity boost.   

 CBN also banned bureaus de change from accessing the RDAS and interbank windows, restricting interbank sales to funding letters of credit, bills for collection and other invisible transactions. 

Given these interventions by the apex bank, the naira appreciated N1.90 against the greenback on Thursday to close at N188.20/$1. 

  Week-on-week, the naira lost N5 against the dollar on Friday to close at a new low of N190.18/$ at the interbank market.

  “Despite the recent policy changes aimed at curbing speculative activities, we expect that the naira to remain pressured although we anticipate a marginal rebound this week. 

  “The decision by dealers reached on Wednesday to halt trading activities once the naira depreciate two per cent at intraday should also offer some level of support for the naira and moderate volatility swings.