CBN Opens Discount Window to Boost Liquidity, Naira Strengthens to N282.80/$1 – Thisday

  • BDCs offer to close gap in FX market

Obinna Chima

In a move to avert a liquidity crisis in the interbank FX market, the Central Bank of Nigeria (CBN) Wednesday opened a discount window for banks to meet their short-term dollar demands, THISDAY learnt last night.

Although attempts to confirm this from the CBN proved abortive, it was gathered the move was to help stabilise activities in the interbank FX market.

Speaking in a phone interview with THISDAY, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the decision to create a discount window would be positive for the market.

“You know they (CBN) have taken out so much funds in the past three days and lack of liquidity will not allow it to effectively achieve its objective in the market,” he explained.

The overnight tenor of the Nigeria Interbank Offered Rate (NIBOR) responded to the supply gap in the market yesterday, as it jumped to 68.50 per cent, higher than the 51 per cent on Tuesday. Also, the open buy back (OBB) rate climbed to 63.33 per cent yesterday, higher than 45 per cent on Tuesday.

But the naira appreciated by N2.03 to close at N282.80 to a dollar on the third day of trading on the interbank spot market yesterday, 0.71 per cent lower than N284.83 to a dollar on Tuesday.

THISDAY learnt that the CBN intervened again yesterday with an undisclosed amount of dollars to primary dealers at N281, just as it was gathered that inflow to the market was further buoyed by forex sales by some oil companies.

However, data obtained from the FMDQ showed that on the forwards market, the 7-day value of the naira was N282.04/$1; the 14-day was N286.30 to a dollar; and the 1-month rate of the naira went for N291.70 to a dollar.

Also, the 2-month rate of the naira on the forwards market went for N296.62/$1; 3-month – N301.11/$1; 6-month – N306.74/$1; and one-year rate was quoted at N317/$1.

Meanwhile, seeing the successful taking of the free float of the naira, the Association of Bureau De Change Operators of Nigeria (ABCON) has called on the central bank to allow its members participate in the new FX market structure.

Speaking in a phone interview with THISDAY yesterday, the president of ABCON Mr. Aminu Gwadabe said BDCs has the network, capacity, convenience, potency, and ability to serve the critical retail segment of the economy.

According to him, allowing just banks as primary FX dealers, would not create room for dollar supply to meet the retail needs of Nigerians that BDCs serve.

“Remember the BDCs are up to 3,000 in Nigeria, with a wide network. If you fly into the country at 2am at the airport, you will not meet any bank that is open for you to do your transaction. If you want to buy $300, the banks may not look your way; that is why you need BDCs.

“From 2006 to 2015, the BDCs helped the CBN in converging the official and black market rates because we are the ones that can trickle down the circulation of forex.

“We are real traders, we are not like banks that have idle naira. It is only when you have idle naira that you have the capacity to speculate or hoard currency,” he explained.

According to him, the role of BDCs in economic growth was not peculiar to Nigeria alone, saying that currency dealers have played tremendous roles in economies such as India, Algeria and others.

“In the United Arab Emirates, the BDCs in Dubai alone provide the foreign currency cash needs of banks. Go to Lebanon, their economy is highly dependent on the activities of BDCs as a result of diaspora remittances and all these things are packaged and rooted through the operations of BDCs, and banks are not even involved.

“In other climes, banks don’t have much to do with foreign exchange. They are either creating deposits or giving out loans. That is their traditional role in the economy.

“Everybody is happy that we now have a single rate and a market determined rate, so there is no more favouritism, but why are they afraid of BDCs that employ over one million people?

“We are comfortable with the new forex policy because we believe it is going to generate liquidity, but we are not comfortable with it as long as it states that we cannot participate in that market,” he pointed out.

Source: http://www.thisdaylive.com/index.php/2016/06/23/cbn-opens-discount-window-to-boost-liquidity-naira-strengthens-to-n282-801/