CBN introduces new rules to boost liquidity in FX market

The Nigerian Central Bank introduced a new spread limit on interbank transactions on Monday, it said in a statement, in an attempt to boost liquidity in the currency market.

All interbank transactions will be subject to a maximum spread of 1 naira ($0.0033), the Central Bank of Nigeria (CBN) said. A year ago, the bank had said the naira would trade with no pre-determined spreads. The new rules take effect immediately, said the statement.

In Monday’s statement, the CBN also said traders can buy hard currency from each other without its prior approval, which until now had been required. ($1 = 304.4800 naira)

The move, announced alongside a series of other new regulations, could help the bank improve liquidity in its troubled foreign exchange market, marred by a gap between the stronger official exchange rate and a weaker black market rate.

The CBN has tried to close that gap by pumping dollars into the market since February. In a separate statement, the bank said it had injected $190 million on Monday. That brings the total amount close to $5 billion, according to analyst estimates.

At Monday’s trading, the bank offered the sum of $100,000,000 as wholesale interventions and allocated the sum of $50,000,000 to the Small and Medium Enterprises (SMEs) forex window.

Customers requiring forex for Business/Personal Travel Allowances, tuition and medical fees, among others, got $40 million.

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Confirming the figures, Isaac Okorafor, the acting director, corporate communications at the CBN, said the bank was pleased at the performance of the naira, which had made tremendous gain against the dollar in recent times.

According to him, the forex rates at both the inter-bank and BDC segments, had almost converged, prompting even greater optimism that the value of the naira will continue to spike.

Okorafor observed that by ensuring transparency in the market as well as fairness to end-users, the CBN had further exposed speculators and checkmated them.

He therefore urged all dealers, particularly licensed BDCs, to continue to play by the rule, adding that the CBN would not hesitate to wield the big stick against any erring bank or dealer.

The naira continued to maintain its strong stand against major currencies around the globe, exchanging for $364/$1 in the BDC segment of the market on Monday, June 5, 2017.

The CBN now operates at least seven exchange rates, including an official rate, one for Muslim pilgrims going to Saudi Arabia and a rate for foreign travel, school and medical fees.