Forex measures hit demand, reserves rise by 7.9 per cent

Godwin Emefiele, CBN governor... the apex bank has a role in the re-engineering of Nigeria’s economy

Godwin Emefiele, CBN governor… the apex bank has a role in the re-engineering of Nigeria’s economy

The series of policy measures aimed at stemming the speculative demand for foreign exchange (forex) in the country may have trickled in earlier results with the reserves’ 7.9 per cent increase in July.

The external reserves, which resurged to $31.3 billion in July, was expected by some analysts, given increased efforts to reduce speculative attacks on the local unit by the Central Bank of Nigeria (CBN).

However, gloomy outlook persists with the sustained sliding profile of the international crude oil prices, which leaves the benchmark crude oil price (Brent) declining by 3.8 per cent week-on-week and 17.3 per cent month-to-date to U$52.57 due to glut in the market.

The forex tightening measures taken by the apex bank, according the recently released External Sector Development report, caused a reduction in utilisation by Deposit Money Banks in the first quarter of 2015.

The report, which showed a 4.9 per cent year-on-year and 6.4 per cent quarter-on-quarter decline in forex utilized by DMBs for “valid” visible (or tangible) imports to $8.4 billion; also showed a 38.1 per cent year-on-year and 32 per cent quarter-on-quarter contraction in forex utilization by DMBs for “valid” invisible (or services) imports to $5.7 billion.

Afinvest Securities Limited in a note to The Guardian at the weekend, said that consequent on the recent exclusion of 41 items from the list of items valid for accessing forex from all segments of the market, the tide would be a further drop in visible and invisible imports’ forex utilization in the second quarter and second half of 2015.

“This is on the back of the quantum the newly excluded products, estimated at 20 per cent of total forex utilisation by DMBs in the previous quarter,” the securities company said.

Meanwhile, the naira traded flat at N199.10/$ week-on-week at the interbank foreign exchange market, with the amount of dollars sold remaining reasonably below the level of demand despite sale of the greenback by oil companies.

CBN sustained intervention at N197/$ in the interbank market helped performance to remain stable in the segment when measured week-on-week.

But despite the low activity level in the interbank and BDC segment, given the recent foreign exchange policies, there was assessed level of improvement in forex rates in the parallel market last week.

The parallel market, which opened the week at N243/$, had on Friday, closed at N225/$, showing 7.4 per cent appreciation for the local currency week-to-date.

“We believe the seeming improvement is linked to the excess supply in the parallel market as commercial banks halt acceptance of dollar deposit into domiciliary accounts due to too much cash in their vaults,” Afrinvest added.

Money market rates- Open Buy Back (OBB) and Overnight (O/N), traded relatively lower last week, given a mixture of various monetary tools in the market.

The apex bank, which conducted an Open Market Operation early last week, mopped up N91.4 billion from the banking system, but was quickly countered with the expected Federal Accounts Allocation Committee monthly budgetary allocation of N240 billion the same day.

Consequently, market rates crashed to 9.4 per cent for OBB and 9.8 per cent O/N and sustained the trajectory to 6.7 per cent and 7.2 per cent respectively, despite further N70 billion OMO auction, which was oversubscribed to the tune of N96.4 billion.

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