Tuesday 21 June 2016

Naira crashes to 288/dollar at new official market as CBN clears $4.02 backlog

As the Central Bank of Nigeria lifted the peg on the naira, the local currency depreciated to N288.85 to the dollar on the Nigeria Interbank Foreign Exchange (NIFEX) market on Monday, with the central bank conducting Special Secondary Market Intervention Sales (SMIS) to clear the backlog of $4.02 billion pent-up demand for FX.

The local currency also depreciated at the parallel market where it closed at 346 to the greenback, down from around 330 and 335 on Friday.

According to the CBN, it sold $532 million on the spot market and $3.487 billion in the forwards market.

A breakdown of the $3.487 billion forward sales by the central bank showed that $697 billion was for one month (1M), $1.22 billion for two months (2M) and $1.57 billion for three months (3M).

The Central Bank of Nigeria had last week introduced new guidelines for the nation’s foreign exchange market with the adoption of a single structure through the interbank/autonomous window.

The naira, which was pegged at 197-199 per dollar before the emergence of the new forex policy, closed at 288.85 to the dollar on Monday, with the forces of demand and supply coming to play to determine the value of the nation’s currency after the CBN allowed it to float freely.

The CBN said it cleared a total foreign exchange demand backlog of $4bn with a dollar exchanging for N280 at the foreign exchange market.

The apex bank, in a statement issued on Monday by the Acting Director, Corporate Communications Department, Mr. Isaac Okoroafor, expressed satisfaction with the performance of the market on its first day.
The statement reads in part, “Nigeria’s new foreign exchange market made a robust take-off on Monday, June 20, 2016, clearing all the backlog of $4bn pent-up demand for foreign exchange, with the naira exchanging at 280 to the United States dollar.

“The objectives of the CBN to clear the forex demand backlog, perform its role as strictly a market intervention participant, and re-launch a functioning and efficient interbank market were met.

“The CBN, in line with its desire to promote a transparent, liquid and efficient market, and in order to engender market confidence and ensure credible price formation, intervened in the market through a special secondary market intervention sales addressing the issue of the FX demand backlog by clearing $4.02bn through spot and forward sales.

“This served in no small way to stimulate price discovery, with the determination of a marginal rate of $/280.00 through the special SMIS process. So, we can state to you categorically that the FX demand backlog has now been cleared and behind us for good.”
Okoroafor assured market participants and the general public that the bank was committed to making the FX market globally competitive, credible, transparent, liquid and efficient.

Credit: ThisDay/Punch

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