Each Bureau de Change (BDC) operator that the Central Bank of Nigeria (CBN) sold $10,000 to recently is expected to make a maximum of N180,000 margin, going by the instruction not to exceed 1.5 percent above the purchase price.
In its second tranche of dollar sale to eligible BDCs, the Central Bank of Nigeria (CBN) on Monday sold $10,000 to each BDC at a rate of N1,251/$. The apex bank expects them not to sell above N1,269/$, representing a margin of N18.
Despite this instruction, BDC operators on Tuesday March 26 still sell dollar to willing buyers at N1,450/$, saying that the weekly dollar sales from the CBN is not enough to meet the demands.
Nigerians await today’s outcome of ongoing meeting of the Monetary Policy Committee (MPC) which started yesterday March 25. Among other factors, concerns around inflation, foreign exchange (FX) stability will determine MPC members rate decisions.
“It appears that there have been moderate inflows of FX from foreign portfolio investors over recent weeks,” Guy Czartorysk-led Coronation research analysts said in a March 25 note.
“Last week, the exchange rate at the NAFEM window appreciated 11.96percent to close at N1,431.49/$1 reducing the year-to-date decline of the Naira to US dollar to 36.63percent.
“In the parallel market, the Naira gained 8.45percent ending the week at N1,480.00/$1. The improvement in the official window created a 3.39percent gap between the official and street markets. The CBN’s published gross foreign reserves declined by 0.45percent week-on-week to $34.26billion,” Coronation research analysts further said.
The Central Bank of Nigeria (CBN) had about three weeks ago revoked the licences of 4,173 Bureau De Change Operators. The apex bank said the affected institutions failed to observe at least one of its regulatory provisions for licensed BDCs.
The CBN in February 2024 promised to sell $20,000 weekly to BDCs at N1,301. This followed the on-going reforms in the foreign exchange market, aimed at achieving an appropriate market determined exchange rate for the Naira.
CBN has mandated that at least 75percent of any foreign currency sale must be electronically transferred to the customer’s Nigerian domiciliary account or prepaid card.
The Philip Anegbe-led CardinalStone research analysts in a recent macroeconomic update noted “In the last few weeks, the CBN leadership has intensified efforts to restore market confidence and improve communication with investors, which has largely been positive for Nigeria’s investment case”.
“To provide context, confidence in the Nigerian FX market has materially improved due to the restructuring of market frameworks, intensifying of hawkish rendition, and the clearing of all legal outstanding FX backlogs,” CardinalStone analysts said.
The analysts noted that aside from BDC sales, the CBN has ramped up its sales to banks, with recent transactions consummated between N1,280/$ and N1350/$.
“These interventions are likely to subsist on the impact of continuously improving inflows through FPIs and FDIs, with potential proceeds from Eurobonds and higher crude oil sales as upside risks.
“The expectations for foreign inflows into Nigeria remain sanguine, aided by the elevated fixed-income rates and CBN’s pro-FX market policies. However, Nigeria is expected to face intense competition for foreign flows from countries such as Egypt,” said the CardinalStone analysts.
They viewed the associated accretion to foreign reserves (YtD +$1.4 billion) as a natural consequence of current monetary policy reforms and investors’ reassessment of the Nigerian investment case.
“We see latitude for further improvements in FX reserves due to sustained foreign inflows, higher remittances, and the recent decision to house some NNPC accounts with the CBN. Additionally, with the US Fed sticking to its prediction of three rate cuts this year, Nigeria’s carry trade may further improve,
and the associated cost of the proposed Eurobond issuance may become more manageable for Nigerian authorities. We expect these to cascade to more dollar inflows in the near to medium term,” CardinalStone analysts said.
The summary of the forex auction showed that the naira appreciated by 1.64 percent as the dollar was quoted at N1,408.04 on Monday, stronger than N1,431.49 quoted on Friday at the Nigerian Autonomous Foreign Exchange Market (NFEM).
Data from the FMDQ showed that the intraday high closed at N1,442 per dollar on Monday, stronger than N1,468/$1 closed at on Friday. The intraday low closed flat at N1,300 per dollar on Monday as against N1,301 closed on Friday at NAFEM.
The daily FX market turnover increased by 11.06 percent to $221.80 million on Monday from $199.71 million recorded on Friday.
The CBN circular reads, “We refer to our letter to you referenced TED/DIR/CON/GOM/001/071 in respect of the above subject wherein the CB approved a second tranche of sale of FX to eligible BDCs.
“We write to inform you of the sale of $10,000 to each BDC at the rate of N1,251/$1. The BDCs are to sell to eligible end users at a spread of not more than 1.5 per cent above the purchase price.”
Dollar rate on Monday crashed to N1,450, pushing up the value of the naira by 2. 07 percent as speculators offload hoarded foreign currency at the parallel market, popularly called black market. The naira, which closed at N1,480 on Friday, appreciated to N1,450 on Monday, resulting in loss of money by many speculators who bought dollars at higher rates.
