There were indications that foreign exchange market is on further squeeze as tougher measure to control utilization of foreign currency reserves has come on stream in banks.
CBN & Exchange rate: Naira & Dollar
Some banks’ currency dealers, who spoke toVanguard yesterday, said that the Central Bank of Nigeria, CBN, has tightened noose on their foreign exchange transactions with customers by reducing amounts available to individuals.
According to them effective November 1, they will effect a reduction in the annual international spending limit on Naira debit cards from USD50,000 to USD25,000.
Consequently, for customers requiring transaction spending above the limit, they will be required to obtain a dollar debit card by opening an individual domiciliary account funded by electronic transfer to ensure continued card usage abroad.
This would effectively curtail usage of foreign exchange reserves by individual travellers as they would be required to fund such accounts from sources other than the official foreign exchange windows.
It would also track usage of the Naira debit cards for illicit funds movements out of the country.
… as CBN explains
forex flunctuations
Meanwhile, the apex bank has indicated that recent fluctuations in the exchange rate on its foreign exchange window was a reflection of the apex bank’s reactions to demand and supply at the market.
The closing rates have shown incessant fluctuations in recent times with a slight mark-up, yesterday, to N197/ USD1 from N196.98, the second time this week after a downward adjustment on Monday.
Currency traders said the regulator sent a message, announcing the adjustment which is the ninth since the bank introduced tight currency controls in February.
A Director in CBN, told Vanguard yesterday: “The apex bank was not fixing the rates, but only intervenes to maintain the rates within a certain band.”
According to him, the changes in exchange rate were in reaction to forces of demand and supply, which could necessitate CBN’s intervention sometimes.
He said the banks were also working with this understanding, adding that CBN would not let the exchange rate go beyond certain mark.
He expressed optimism that when the refineries come on stream with substantial local supply of petroleum products, the current demand pressure on the foreign exchange resources would reduce, thereby helping exchange rate management.
CBN has resisted calls to further devalue the Naira in the face of a plunge in oil revenues.
However, the bank has continued to intervene at the interbank market periodically to provide forex liquidity support for the local currency.
It also sells dollars twice weekly to the bureau de change operators as part of efforts to support the Naira and narrow the gap between the official forex and parallel markets.
The local currency traded at N225 to the dollar on the parallel market yesterday. Though slightly weaker than N224 traded on Monday, it still presented a wide gap with the CBN window rate of N197.
Bond rates crash
Meanwhile trading in the bonds market has shown that high liquidity in the money market was depressing yields in that instrument.
Yesterday, Debt Management Office, DMO, announced that the N120 billion worth of Naira-denominated bonds maturing in 2020 and 2024 it issued at an auction on Wednesday, was traded at lower yields than the returns at its previous auction.
The debt office raised N40 billion in the 2020 debt at 13.11 percent, compared with 15.95 percent at the previous auction in August.
The same tenor bond closed at 13.28 percent at the secondary market on Wednesday.
A total of N80 billion of the benchmark bond maturing in 2024 was issued at 13.87 percent compared with 16.84 percent of the same tenor debt attracted at the March auction when it was last issued.
The 2024 paper closed at 13.71 percent at the secondary market on Wednesday.
Yields on Nigerian debt have dropped sharply since last month, due to increased liquidity in the banking system, spurring demand for the local bond by pension and commercial lenders.
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