The Central Bank of Nigeria (CBN) has increased dollar sales to banks by over 200 percent, in fulfillment of the promise it made on July 27, 2021.
The apex bank had made this promise following its decision to discontinue foreign exchange supplies to the Bureau De Change (BDCs).
Investigation by BusinessDay showed that some banks that used to get $1.3 million allocation from the CBN now get $4 million.
“While the CBN banned the BDCs, it has increased dollar sales to banks. At the last bid conducted, the CBN allotted to every bank more than it used to allot to them so that they can meet increased demand,” a banker who spoke with BusinessDay under anonymity said.
“So the flow that supposed to go to the BDCs have been allotted to banks. I can tell you that some banks that used to collect $1.3 million, gave them $4 million,” the banker said.
This is coming as the external reserves have begun to respond to oil price increases. Data from the CBN showed that gross official reserves rose by USD79m to USD33.4bn in July said FBNQuest.
The buffer of Africa’s largest economy decreased steadily to USD33.09bn in the first 12 days of the month, before a steady increase in the remaining days of July, a report by the FBNQest noted.
“To obtain a fuller picture, we should adjust this gross figure for the pipeline of delayed external payments: this adjustment has been estimated at up to USD3bn (by the IMF in late 2020), substantially less (by the FGN in March) and above USD4bn (by market commentators in May),” analysts at FBNQuest said.
Total reserves at the end of July covered 7.7 months’ merchandise imports on the basis of the balance of payments for 2020, and 5.6 months when added services.
“We are reasonably comfortable with reserves at this level, and see a further rise in the short term,” the analysts said.
BusinessDay had reported last week that there is hope for a stable naira going forward as the expected foreign exchange inflows worth about $6.3 billion will likely give Nigeria’s Central Bank has the firepower to defend the local currency.
A breakdown of the inflows indicated that Eurobond issuance worth $USD3-5bn and the $3.3 billion allocation from the International Monetary Fund (IMF)’ Special Drawing Rights (SDRs) August 23, 2021, will help push up the external reserves.
Nigeria’s external reserves increased by 1.27 percent to $33.56 billion as of August 6 2021 from $33.14 billion recorded on July 5, 2021, data from the CBN indicated.
Following the increased dollar sales to banks, Nigeria’s currency has relatively remained stable at the official market, exchanging at N411.50k per dollar since last week.
Responding to the development, Jimi Ogbobine, head of Consulting at Agusto Consulting, a pan-African credit rating agency said the CBN has put a slowdown on FX speculation outlets, trying to curb all speculative outlets which are where the external reserves have been going into. However, he said there is still some risks.
“There is going to be SDR money which should shore up the foreign reserves and at the same time, we are still not doing well in terms of non-oil exports and the other fundamental drivers in FX. We are still playing short-term in all these. We are still not concentrated on the core long-term issues,” Ogbobine said.
In his view, Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria said, “there has been an increase in dollar supply in recent times. Naira depreciation is coming more from demand pressure but this is bound to subside as we approach year-end”.
He said the accretion to reserves has been due largely to the strong crude oil price. “In the coming months, foreign reserves will be boosted by the Eurobonds which the government plans to issue and together with increased Diaspora remittances associated with the yuletide period will result in narrowing the margin between official and parallel market Exchange rates,” Uwaleke said.
The foreign exchange market on Monday maintained calmness as Nigeria’s currency closed unchanged across market segments.
Naira opened on Monday with a N2 to N508 per dollar during the morning trading but later closed at N510/$, the same rate closed on Friday at the parallel market, also known as black market.
On Tuesday morning, Naira/ exchange rate was still trading at the same rate of N510 on the black market.
However, exchange rate disparity between the official and alternative markets remains a concern.
This arbitrage is driven by supply shortage with attendant speculation and affects businesses that pay a higher premium to buy dollars.
Responding to the accretion in external reserves in the last one month, Taiwo Oyedele, head of Tax and Corporate Advisory Services at PwC said the price of crude oil in the international market has been sustained at over USD 70 per barrel for a few months.
Also, he said there has been an increase in Nigeria’s production quota by OPEC. In addition, the recent Special Drawing Rights by the IMF and the planned Eurobond in the second half of this year will further lead to accretion in the external reserve.