How CBN’s sale of $2.03bn crashed the Dollar to Naira exchange rate in 5 Weeks
If you are the observant type you are sure to notice the drastic rise in the value of the Nigerian Naira. As the Naira rose from an exchange rate of 520 Naira to 1 Dollar back in February to 390 Naira to 1 USD today. How did this happen and how did the fortunes of the Naira change for good in the past 5 weeks?
Over the past five weeks, the Central Bank of Nigeria (CBN) through its regular interventions at the foreign exchange market sold over $2 billion dollars to meet wholesale and invisible demand. This intervention as expected caused the value of the naira to soar at the parallel market.
The value of the naira as at Friday afternoon (24/03/2017) had appreciated to N380 to the dollar, while the BDC and bank-selling rates stand at N375 and N385 to the dollar respectively.
In February, the CBN commenced intense flooding of the forex market with dollars after the naira dropped in value to around N550 to the greenback.
In all, it had sold $410 million for invisibles such as school fees, medical fees, Basic Travel Allowance and Personal Travel Allowance between February 21 and March 24 of this year.
In February, the apex bank had sold $671 million in wholesale forwards and invisibles within two weeks and pumped $1.362 billion into the market in March to spur liquidity in the market.
This is aside the weekly allocation that BDCs get from the International Money Transfer operators. More than 2000 BDCs access forex from the IMTO window on a weekly basis.
The value of the naira which had been stable at around N400 at the parallel market in the beginning of this year, gained value as demand outweighed supply of the United States dollar.
The apex bank began an aggressive supply of foreign exchange in the market, relaxing its forex rules to allow banks sell forex to customers directly.
In February, the CBN had directed that banks should ensure all applications for BTA and PTA are processed within 24 hours, while medical and tuitions be concluded within 48 hours of such applications.
Asking banks to put up electronic display boards in all their branches, showing the rates of all traded currencies, the CBN also directed them to open foreign exchange outlets in all leadership locations, warning that any breach of this directive would be visited with severe sanctions.
With these new directives, customers who had previously found it difficult and time consuming to source foreign exchange from banks now have easier access, even as the patronage of black marketers dropped.