CBN introduced measures to conserve foreign exchange reserves and boost inflows
With its weekly intervention of $210 million, the Central Bank of Nigeria (CBN) has, like this weekend, injected a total of $840 million into the foreign exchange market this month, as part of efforts to to ensure the stability of the naira, according to the findings of New Telegraph Show.
According to Cowry Weekly Financial Markets Review & Outlook (CWR) reports published by Cowry Asset Management Ltd, the apex bank injected the sum of $210 million into the forex market every week between June 3 and June 24, 2022. This means that for the month of June, CBN defended the naira with $840 million. Analysis of the reports by New Telegraph indicates that during the reporting period, CBN allocated a total of $400 million and $220 million respectively to Wholesale Secondary Market Intervention (SMIS) sales and small and medium-sized enterprises, 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 dated June 24, 2022 states, “In the interbank FX market, N/USD closed at N/USD 430.00 amid CBN’s weekly injections of $210 million: $100 million have were allocated to Secondary Wholesale Market Intervention (SMIS) sales, $55 million was allocated to small and medium enterprises, and $55 million was sold for invisibles.
In its January monthly “foreign exchange market developments” report released last month, CBN said it injected $3.36 billion into the forex market in December 2021 and January 2022 as part of efforts to ensure the stability of the naira.
The report states, “Total FX sales to Bank-approved brokers were $1.65 billion in January, down 3.1% from $1.71 billion in December 2021. “A breakdown shows that sales of currencies to small and medium Business Window, sales of interbank/invisible currencies and maturing swap contracts increased by 24.4%, 25.9% and 60.8% to reach $0.14 billion, $0.18 billion and $0.21 billion, respectively, in January, compared to the amount of December 2021.
“However, foreign exchange sales to investors and exporters and at counters of secondary market intervention sales fell 13.7% and 16.3% to $0.58 billion and $0.54 billion. , respectively, during the month under review.” Analysts note that in the aftermath of the 2020 COVID-19 crisis, which saw the price of oil (the commodity that accounts for over 70% of Nigeria’s foreign exchange earnings) plummet to record lows and also led to a sharp drop in capital inflows into the country,
The CBN has introduced several measures aimed at both reducing its supply of dollars in the foreign exchange market and encouraging remittances from the diaspora.
Specifically, in July last year, CBN ended currency sales to Bureaus De Change (BDCs), claiming that BDCs had defeated their purpose of existence to provide currency to retail users, but were instead become illegal wholesalers and resellers.
The apex bank sold $20,000 a week to each of more than 5,500 BDCs across the country, translating into an annual allocation of $5.72 billion to operators. In addition, as part of measures to boost foreign exchange inflows into the country, CBN,
in November 2020, announced that recipients of diaspora remittances, through International Money Transfer Operators (IMTOs), would now be allowed to receive such inflows in foreign currency through the designated bank of their choice. In addition, the banking sector 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 increase foreign exchange inflows. As part of this policy, the apex bank has introduced a rebate of 5 naira for every dollar of funds disbursed to Nigerian IMTOs. Commenting on the initiative at the time, CBN Governor Mr. Godwin Emefiele said, “In an effort to reduce the cost of remittance transfer to Nigeria by Nigerian workers in the diaspora, the Central Bank of Nigeria introduced a rebate of N5 for every dollar of funds paid into Nigeria, through central bank licensed IMTOs. “We believe this new measure will help make the process of sending remittances through formal banking channels cheaper and more convenient for Nigerians in the Diaspora.” Indeed, a non-executive director/member of CBN’s Monetary Policy Committee (MPC), Professor Mike Obadan, told attendees of a two-day seminar organized by CBN for financial correspondents and business writers in March this year, that the Naira-$4 program has been very successful in attracting diaspora remittances. He said, “During COVID-19, remittances from the diaspora averaged six million dollars per week, but now they are registering around $100 million per week. The amount of foreign currency entering the country through remittances has skyrocketed.
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