CBN seeks rates convergence, injects more funds into FX market

By Odunewu Segun

The Central Bank of Nigeria has disclosed its target of making exchange rates for the naira converge on the official and black markets, and plans to inject another $100 million on the forward market on Tuesday to boost liquidity.

The naira was quoted weaker on Tuesday at an investor trading window, at 380.31 per dollar, data from market regulator FMDQ OTC Securities Exchange showed. The official market rate was 305.85 and the black-market rate 390.

“The bank was committed and was indeed working to achieve convergence in the forex rates between the interbank and the bureau de change segment,” said its spokesman Isaac Okorafor.

The apex said all dollar allotments must be backed by demand and that it will settle Tuesday’s dollar sales within a week and 45 days after the sale.

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Earlier, the bank offered $100 million on Thursday but sold $85.69 million. Okorafor said in a statement lenders did not take up the whole offer, which meant there was “enough foreign exchange to meet legitimate demand”.

Analysts doubt whether the CBN can sustain such sales. The convoluted exchange rate system masks pressure on the naira with the regulator trying to avoid a devaluation.

Okorafor said the bank has the capacity to sustain its intervention.

Nigeria’s dollar reserves grew to a 19-month high of $30.8 billion last week, thanks to a recent rise in global oil prices, the country’s main source of hard currency. But reserves remain far off the peak of $64 billion they reached in August 2008.

Nigeria runs a system of multiple exchange rates, and the central bank has sold more than $4 billion on the spot and forward markets in its efforts to increase liquidity. In theory, greater liquidity should lead the rates to converge.

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